Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

HOVE BOROUGH COUNCIL BILL [Lords]

Read the Third time and passed, without amendment.

BUCKS LAND AND BUILDING COMPANY BILL [Lords]

Read a Second time and committed.

Oral Answers to Questions — EDUCATION AND SCIENCE

Student Fees

Dr. Hampson: asked the Secretary of State for Education and Science if he will make a statement on fees for undergraduate and postgraduate students.

The Secretary of State for Education and Science (Mr. Frederick Mulley): I refer the hon. Member to the answer I gave yesterday to a Question from my hon. Friend the Member for Newham, South (Mr. Spearing), a copy of which I have sent to the hon. Member.

Dr. Hampson: Will the Secretary of State say how he arrived at £650? What is the extra cost to the Treasury of meeting all the tuition fees at that level? Will there be a rundown in the value, in real terms, of the maintenance award, leading to the possibility of a loan scheme? Will there be a safety net for universities, a good proportion of whose income is derived from fees, if the numbers fluctuate wildly?

Mr. Mulley: The hon. Member embraces disaster with great alacrity. None of these disastrous things will happen. I am separating fees from maintenance be-

cause there have been wide representations from many students—this has been confirmed by surveys—urging me to do so. A great number of parents do not give their children the amount that they need to pay in maintenance, so none of the fears that the hon. Member expects on this score will arise.
The total extra expenditure on this score will be about £3 million, which will be more than offset by extra income on other accounts. The universities' income will be considered by the University Grants Committee as part of the annual arrangements for their support grant.

Mr. Bryan Davies: Will the Secretary of State accept that many of us wish to congratulate him on ending the discrimination between home-based and overseas students, and resisting the worst possibilities of most savage increases in overseas students' fees? Will he bring to the attention of the Minister for Overseas Development the necessity of offering support to overseas students in the face of the rise in their fees?

Mr. Mulley: It is the intention of the Minister for Overseas Development to increase the grants, in cases of students supported by his Department, to meet additional costs. I would have liked to have the same balancing arrangements at lower levels, but the amount of savings we have to make is forced on us by the harsh realities of the ecenomic situation.

Mr. Freud: In view of the fact that 1¾ million part-time students are expected to pay 25 per cent. more, can the Secretary of State make an estimate of the damage done to this sector of education, and the misery of those evening class institutions which are dependent on part-time evening students?

Mr. Mulley: I cannot give any estimates of damage. The fees we are talking about do not come into effect until September 1977, and while we are grappling with the problems of inflation there will be some increase in costs. In the two years we have to run since last October, when the fees were last put up, the increase will be 25 per cent. which is, in real terms, more or less standing still.

Mr. Canavan: In spite of what has been said, there will still be an element of discrimination against overseas


students in practice, as most home-based students in receipt of mandatory grant will pay no tuition fees at all, whereas overseas students' tuition fees will have an increase of over 50 per cent. between the last session and the next. Is not this, together with the limit on the number of overseas students, encouraging an element of educational apartheid?

Mr. Mulley: The practice of assisting our own students has gone on almost since the universities began. The system of monetary awards has existed since 1962, so that in that sense we do not provide free tuition for anyone in the world who happens to come here. Therefore, the distinction remains as it has always been. As to the question of the quota, the soundings that I have made indicate that it will be unnecessary to have any formal arrangements. But I have made clear that I must discuss these proposals with the university and local authorities concerned, and I think it right that rather than have private consultations I should publish the basis upon which consultations will take place. Certain adjustments may then have to be made.

Mr. van Straubenzee: Is the Minister aware that the abolition of a separate rate of fee as between home and overseas students will be greatly welcomed? Does he recall that this separate rate was opposed strongly by the Conservatives when the Labour Government implemented it more than 10 years ago? Does he accept that within the constraints of existing expenditure, and without calling for additional expenditure, it would be very desirable if we could introduce greater flexibility to help students from less developed countries, if necessary at the expense of those from more developed countries?

Mr. Mulley: I agree with the hon. Gentleman's final proposition, which is more a matter for my right hon. Friend the Minister for Overseas Development than for me. There are, however, practical problems in how one handles the matter. It does not follow that because a student comes from a poor country he is necessarily poor, or that because he comes from a rich country he is necessarily rich. I understand that the hon. Gentleman and his party oppose the imposition of a differential, but during

their period of office they did nothing to remove it. They did nothing to put up fees, which meant that they could attack us for the high level of public expenditure when we took over. In spite of all that, I am grateful to the hon. Gentleman for the compliment he paid.

Mr. St. John-Stevas: I congratulate the Minister on standing up to the Treasury mandarins, which is always a work of supererogation. I also congratulate him on ending the discrimination between overseas and home-based students. Further, I congratulate him on exempting tuition fees from the parental contribution. Is he aware that if we could have more of this ecumenical approach to education we should make progress towards that desirable end of taking politics out of education?

Mr. Mulley: I should like to take education out of politics. I am grateful for what the hon. Gentleman said. I hope that that will not make any more difficult the consultations that I am about to have with the bodies affected. It is most important to stress that when the fees for overseas students were put up to £250 in 1968 they represented 24 per cent. of the average costs. The £650 that I propose they should be in 1977–78 will then represent only 16 per cent. of what we expect then to be the average cost.

Several Hon. Members: rose—

Mr. Speaker: Order. I allowed longer for that Question because of its importance, but we cannot spend the same amount of time on the rest of the Questions.

Teachers (Employment)

Mr. Hardy: asked the Secretary of State for Education and Science how many teachers were employed at the latest available date; how many he expects to be employed in three years' time; and how many were employed three, five and seven years ago.

The Under-Secretary of State for Education and Science (Miss Margaret Jackson): The following numbers of teachers were employed in maintained primary and secondary schools in England and Wales in the years for which the information is requested: in 1969, 333,000; in 1971, 368,000; in 1973, 410,000; in 1976, 459,000.
The recent White Paper on Public Expenditure (Cmnd. 6393) includes provision for the employment of 464,000 teachers in 1979.

Mr. Hardy: Is it not the case that since the Houghton Report unexpectedly large numbers of former teachers wish to return and have returned to the profession? Is this not a contribution to the risk of unemployment among new entrants to the profession? Therefore, will the Minister urge local authorities to give employment priority to new entrants in the next year or two while emphasising that the number of teachers will not be allowed to decline at a rate that matches the fall in the school population?

Miss Jackson: There is a great deal in what my hon. Friend said. As he may be aware, my right hon. Friend has suggested to local authorities on more than one occasion that they should seek to employ as many as possible of the teachers newly emerging from the training college, but these decisions are in the hands of local authorities.

Mr. Montgomery: If the Secretary of State, in looking after the interests of teachers, had shown just one-tenth of the zeal he has shown in trying to overrule the democratically-elected council on Tameside—

Mr. Speaker: Order. The hon. Member knows that that matter is sub judice, and that he cannot refer to it.

Mr. Stokes: What advice is the Minister giving to teachers in teacher training colleges about career opportunities outside the teaching profession?

Miss Jackson: We are giving all the advice we can and all that we are qualified to give. We are not in the careers advisory business, but we are doing our utmost to make teachers aware of the alternatives for which their education suits them.

Miss Joan Lestor: Since the employment of teachers is primarily a matter for local authorities, what guidance are the Government giving to the authorities about the difficulties that many young teachers will face in leaving colleges of education unable to do their probationary year in teaching, and the disadvantages to those teachers when they are finally competing with people leaving colleges

of education who will be doing their probationary year?

Miss Jackson: My right hon. Friend has done his utmost to encourage local authorities—not with the total support of all the teacher unions—to employ as many teachers straight out of training college as they can. However, it is not necessary for training teachers to take their probationary year immediately after leaving college. In the past it has often been the custom for 20 per cent. of teachers not to go straight into teaching in maintained schools. Although some may find that a disadvantage in later years, it has always been the case that local authorities may make the choice between new people leaving training college and people of greater experience.

Dr. Edmund Marshall: asked the Secretary of State for Education and Science whether he will make a statement about the latest position in respect of the employment prospects of entrants to the teaching profession this year.

Mr. Freud: asked the Secretary of State for Education and Science if he will give an up-to-date estimate of the number of vacancies in teaching positions available in September for those qualifying from teacher training colleges in the summer.

Mr. Bryan Davies: asked the Secretary of State for Education and Science what measures he is taking to improve the job prospects of students qualifying in colleges of education in 1976.

Mr. Mulley: In the interests of national economic recovery the Government asked local authorities to limit their employment of teachers in 1976–77 to the number sufficient to maintain existing staffing standards. This policy allows for a small growth in the size of the teacher force. Uncertainty about trends in wastage from, and re-entry to, the profession makes it impossible at present to give a detailed assessment of employment prospects. These should become clearer when I have received returns from all local authorities about their staffing intentions for the next school year, but I think it probable that a substantial number of newly trained teachers will not get appointments this year. I have urged local education authorities to give priority to newly


qualified teachers in making appointments. My Department is considering the possibility of offering further training in certain subjects where there is still a shortage of teachers. Regulations are being prepared which, by providing compensation for teachers who may be retired early in the interests of the efficiency of the education service, may assist with employment opportunities for some younger teachers.

Mr. Speaker: I appeal to the three hon. Members whose Questions are being answered and the Minister replying to be as brief as possible, because it will soon be Question Time for the Prime Minister.

Dr. Marshall: Has my right hon. Friend given any guidance or instructions to any local education authority to employ fewer teachers next September, as compared with last September?

Mr. Mulley: I have not given any such instruction. Indeed, I have no power to do so, even if I wished. The circular said that the standard should be maintained.

Mr. Freud: Will the Minister now reconsider his decision not to make available the marginal increase in money that it would cost to employ teachers rather than let them claim unemployment benefit and rot on the scrap heap?

Mr. Mulley: The hon. Gentleman should know that I have no powers to pay any money whatever to local education authorities except through the rate support grant, and I have no control over how they would use such money if it were paid to them.

Mr. Davies: What kind of response is my right hon. Friend getting to his eminently sensible suggestion that some teachers nearing retiring age ought to consider retiring earlier, on reasonable terms, in order that people qualifying newly at colleges would be able to get employment?

Mr. Mulley: This matter is being actively pursued in negotiations between the employers, local education authorities, and the teachers' unions, and I am hoping that, as a result, some progress will shortly be made in this direction.

Parental Choice

Mr. Peter Morrison: asked the Secretary of State for Education and Science whether he is satisfied that sufficient freedom of choice is still available for parents with children of school age to permit the continued observance of the general principle, contained in Section 76 of the Education Act 1944, that pupils should be educated in accordance with the wishes of their parents.

Mr. Mulley: Yes, Sir. I fully accept the general principle that, so far as is compatible with the provision of efficient instruction and training and the avoidance of unreasonable public expenditure, pupils should be educated in accordance with the wishes of their parents.

Mr. Morrison: If he is so satisfied, will the Minister issue a circular to all local authorities telling them to inform parents that they have the right to change the school in which their children are educated if they think their present school is unsuitable?

Mr. Mulley: We are consulting all the interests concerned about a possible circular of guidance, but if parents suddenly decide that they want to move a child from school A to school B, it may be necessary to throw another child out of school B to make a vacancy available. There can be complete freedom of choice only if there are surplus places, and I do not accept that that situation exists at present. That is why the words of Lord Butler which are the ones that I used in my main answer, are so apt in this situation.

Mr. Madden: Will my right hon. Friend comment on the appalling prospect facing parents in Elland, in my constituency, where proposals by certain Tory councillors, who are obsessed with wrecking comprehensive education, are aimed at undermining the excellent Brooksbank comprehensive school? If these proposals go ahead it will mean a return to selection and 11-plus in an area that abandoned them years ago. Does my right hon. Friend agree with the parents, the teachers, the pupils, the governors and the managers of the feeder schools, that these proposals are totally unacceptable and should be totally rejected?

Mr. Speaker: Order. This is not a time for making statements; it is a time for asking questions.

Mr. Mulley: If events are as my hon. Friend has described—and I have no reason to doubt his account—I can understand that there will be grave concern and anxiety in his area. I have a Bill before Parliament, but at the moment I am not in a position to require any authority to adopt any form of secondary education.

School Curricula

Mr. Madel: asked the Secretary of State for Education and Science if he will now answer questions on school curricula.

Mr. Mulley: I cannot answer detailed questions on school curricula matters as responsibility for them is placed by statute on LEA's and school governors and managers. I have, however, a general concern and responsibility.

Mr. Madel: Will the Secretary of State talk to local education authorities to find out whether the courses provided for pupils in their last years at school are satisfactory, bearing in mind the shortage of skilled labour that is developing? Will he not reconsider his answer, because there is anxiety that the courses provided by schools are not sufficiently matched to what industry will need?

Mr. Mulley: I am very concerned about these matters in general terms, but I cannot look at more detailed questions, because responsibility is laid by statute on LEAs and governors and managers. If Parliament decided to change the existing position, we could give further thought to the matter. On the attitude of industry to which the hon. Member referred, I am glad that the TUC and CBI are concerned about this problem and are working out with the Schools Council courses that I hope will assist in curricula matters.

Mr. St. John-Stevas: Since the Secretary of State's Permanent Secretary, Mr. Hamilton, has declared that curricula should no longer be a secret garden, what plans has the right hon. Gentleman had to open the hidden doors? What plans does he have to turn the secret garden of

Mr. Willmott's report on the GCE examination results into a public park, by publication? Would that not be the best way of ending the present controversy?

Mr. Mulley: I have not yet had a chance to read that Schools Council report. I should naturally wish it to be published if the basis for it is right. What perturbs me is the enthusiasm and length to which the hon. Members for Ripon (Dr. Hampson) and Chelmsford (Mr. St. John-Stevas) go to denigrate the Leader of the Opposition, who was Secretary of State during the period in which the report alleges that standards fell so much in our schools. The way they have stolen and leaked documents is quite disgraceful.

Later—

Mr. Mulley: Perhaps I may correct something that I said earlier.
I alleged that a document which had been unofficially published at the weekend had been stolen. I understand that that is not so. I unreservedly withdraw that allegation. I ask the hon. Member for Ripon, and the House, to accept my apology.

Teacher-Pupil Ratios

Mrs. Renée Short: asked the Secretary of State for Education and Science whether he proposes to take action to improve teacher-pupil ratios in primary schools.

Miss Margaret Jackson: Current public expenditure plans provide for the maintenance of present national standards up to 1978–79. Thereafter, it will depend on the economic situation when staffing standards can be reviewed.

Mrs. Short: Is my hon. Friend aware that a few months ago it was estimated that 6,000 teachers might be unemployed in September, but that it is now likely to be more than three times that number? It is for local authorities to determine the number of teachers they employ, but this is a matter not only of will but of finance, so will my hon. Friend and the Secretary of State bear in mind that we on the Government side look to them to resist the baleful influences of the Treasury when it is seeking further cuts in public expenditure, because these are likely to lead to more unemployment?

Miss Jackson: We are only too well aware that the problem of teacher unemployment is mainly a problem of finance, but we are equally aware that when we allot money for education in the rate support grant, we have no power, as the law stands, to determine even whether it is spent on education, let alone whether it is spent on the employment of teachers.

Dr. Hampson: On a point of order, Mr. Speaker—

Mr. Speaker: Order. I shall be obliged if the hon. Member will raise his point of order at the end of Question Time.

Swimming Pools (Heating)

Mr. Newens: asked the Secretary of State for Education and Science how many local education authorities are planning to make economies in public expenditure by ceasing to heat swimming pools provided for the use of schoolchildren; and if he will make a statement.

Miss Margaret Jackson: Detailed information of this nature is not collected by my Department. Local education authorities have wide discretion to decide what measures to contain educational expenditure should be adopted within their areas.

Mr. Newens: Is my hon. Friend aware that in Essex it is proposed to make such economies in respect of 68 pools, many of which were provided by parental effort? Is it not disgraceful that this should be done? Will it not reduce the amount of time available for swimming and inevitably lead to fewer children learning to swim and more deaths by drowning?

Miss Jackson: I agree that it is disturbing that such proposals should be thought necessary by the local authority. I did not learn to swim until I was in my twenties, and I agree that it is very dangerous for children not to be able to swim, and to be in danger of drowning. However, I repeat that this is a matter for the decision of the local authority.

Mr. Freud: Does the hon. Lady accept that it would be difficult to envisage a more sensible economy at the moment?

Class Sizes

Mr. Cryer: asked the Secretary of State for Education and Science what are the average sizes of classes in primary

and secondary schools, respectively, in 1976.

Mr. Mulley: Information about class sizes in maintained primary and secondary schools for 1976 is not yet available.
In January 1975 the average size of class as registered in maintained primary schools was 29·6; the average size of class as taught in secondary school was 22·7.

Mr. Cryer: Does my right hon. Friend agree that there is room for improvement in these figures and that the Government have a ripe opportunity, with the prospect of 15,000 unemployed teachers, to reduce average class sizes still further, especially in areas of deprivation like Yorkshire and Humberside? Does he agree that two sources of finance for this task would arise if the Government ensured that local authorities did not spend excessive amounts on junketing and subsidising former direct grant schools from the rates, as in Bradford, and set a good example by cutting the amount spent on defence?

Mr. Mulley: The House is not unfamiliar with my hon. Friend's favourite targets for cuts in public expenditure. A block grant is given to local authorities and it is for them to determine how to spend it. We should like to employ more teachers and reduce the size of classes, but in present economic circumstances the amount of progress that we can make in this direction is bound to be limited.

Dr. Boyson: Is the right hon. Gentleman aware that the decline in pupil-teacher ratios, of 25 per cent. in 25 years, has not been shown in class sizes? Could there be an investigation into the way in which these extra teachers have been used in administration, instead of at the chalk face in reducing class sizes?

Mr. Mulley: I have heard the hon. Gentleman's views about the chalk face before. It would be universally agreed in the education world—whose members are not always unanimous—that if I tried to go into schools to organise the running of classes and timetables there would be a united front against me. We must leave the working of schools to the head teachers and staffs. It may well make sense in some circumstances to have large


classes for one subject, while teachers do remedial or other work in small groups in other parts of the school.

Nursery Education

Miss Joan Lestor: asked the Secretary of State for Education and Science how much of the 1975–76 money, originally allocated for nursery education but refunded by some local authorities, has been reallocated to other local authorities.

Miss Margaret Jackson: As I stated in reply to a Question from my hon. Friend on 23rd June, £1·7 million of the capital authorisation relinquished was reallocated to local education authorities in England requesting additional resources for nursery education building starts in 1975–76.

Miss Lestor: Does my hon. Friend agree that some of the money originally allocated for nursery education—apart from the reallocation to other local authorities—has not been used? Bearing in mind the statement in the Government's White Paper on Public Expenditure, that despite the cut-backs in capital expenditure on provision for the under-fives, it was still possible to ensure acceptable standards of accommodation in areas of greatest need, what is being done to ensure that these areas are making provision for pre-school children?

Miss Jackson: As my hon. Friend knows, we do all that we can to encourage authorities in such areas to apply for provision. I think she will find that in general the authorities that apply for reallocated funds are those with the greatest needs. It is in such areas that the extra money is being spent. However, my hon. Friend is correct in her supposition that not all of the money allocated for nursery education has been spent in that area during the past year. We regret that as much as my hon. Friend does, but, as she knows—I am sorry to have to reiterate this—it is for the local authorities to decide whether they wish to spend this money.

Mrs. Renée Short: Does my hon. Friend agree that it is time that the Department took some action in respect of the local authorities that are not carrying out Government policy? Will she give an undertaking that the nursery

school expansion programme, such as now exists, will continue?

Miss Jackson: Like my hon. Friend, I frequently wish that we could do more to ensure that local authorities use this money. They could use it, for example, to employ teachers. My hon. Friend will know that as the law stands we can only seek to give them all the encouragment that we can. Indeed, we seek to encourage them to spend the money on nursery education and employing teachers. However, we have no power to oblige them to do so.

Further and Higher Education

Mr. Litterick: asked the Secretary of State for Education and Science whether he will pursue policies likely to produce increases in the number of mature students taking full-time courses in further and higher education; and whether he will make a statement.

The Minister of State, Department of Education and Science (Mr. Gerry Fowler): The Government's planned expenditure to 1979–80 provides for an increase in student numbers in further and higher education, which is expected to include an increase in the numbers of mature students taking full-time courses.

Mr. Litterick: Does my hon. Friend agree that in view of the massive levels of unemployment confidently forecast by the Chancellor of the Exchequer to persist through the rest of the 1970s, money spent on the financing of adult students in higher education institutions would be a valuable component in the fight against unemployment? Will he give the House an assurance that his Department is mindful of that fact, and mindful of the obligation to resist the cuts that may well be imposed again by the Treasury? Finally, will he accept my congratulations on his victory over the Treasury, which he announced yesterday?

Mr. Fowler: I have some sympathy with the first part of my hon. Friend's question. However, he will recall that in 1974 we changed the eligibility for mandatory awards so that any student admitted to a first degree course, for example, would be entitled to a mandatory award whatever his entry qualifications. Although admission arrangements are matters for individual institutions, I


hope that they will give proper weight to the requirements of mature students.

Mrs. Bain: Is it not the case that the Government's policy in terms of public expenditure cutbacks is forcing local authorities into a situation in which they cannot encourage mature students to take up further and higher education? Does he agree that this is a far cry from the previous Prime Minister's statement that we were entering a period of white hot technological revolution?

Mr. Fowler: No, I do not agree with that proposition. I know of nothing in present policy which is discriminatory against mature students.

Mr. Thorne: asked the Secretary of State for Education and Science what plans he has for increasing the numbers of students in further and higher education in preparation for industrial expansion in the early 1980s.

Mr. Gerry Fowler: The Government's plans, including projections of student numbers in higher and further education, are set out in the White Paper "Public Expenditure to 1979–1980", Command 6393, though some adjustment may be necessary in the light of yesterday's announcement about the future level of tuition fees and numbers of overseas students.

Mr. Thorne: Does my hon. Friend agree that increases in public expenditure in this sector of further education are completely in accordance with Labour's manifesto, and that any question of reductions would be completely opposite to the promises that we gave to the electorate? Will he resist any further cuts?

Mr. Fowler: The White Paper indicated that expenditure in this area would provide for an increase in student numbers for the next four years. We hope that increase will take place. We shall give high priority to meeting increased demand from the 16–19 age group.

Dr. Hampson: Does the Minister agree that it would be better for students to go into full-time courses in further education rather than to sit around on the dole, or to take the TSA courses now being set up? What liaison does he have with the Manpower Services Commission

and the Department of Employment to try to further the entry of students into further education colleges?

Mr. Fowler: I can express no view on the question whether it would be preferable for an individual student to take a course of further education, and further education alone, or to undergo a course of further education and training under the TSA scheme. That is a matter for judgment in each individual's case. My collaboration with the Manpower Services Commission and the Department of Employment on these matters is very close.

Mr. Evelyn King: Does the hon. Gentleman accept that there is no real evidence that there will be any expansion in the 1980s? Whether there is or is not, does he accept that it is necessary not to increase or decrease the number of students but to have more regard to the subjects that they study? Is he aware that in some areas there is a surplus while in others there is a deficiency?

Mr. Fowler: I cannot accept the first part of the hon. Gentleman's question. As for the latter part, my right hon. Friend has already explained today that we have exceedingly limited powers over curricula. In fact, we have none over school curricula. As regards FE curricula, we cannot steer student choice between particular disciplines.

Youth Service (Essay Competition)

Mr. Steen: asked the Secretary of State for Education and Science what new policies he will be pursuing as a result of the essay competition launched by his Department to gain fresh thinking from young people themselves as to the future rôle and task of his youth department and his Youth Service.

Mr. Gerry Fowler: Following the review of the Youth Service, of which this competition was a small but useful part, agreement in principle has been reached on the establishment of a representative Youth Service forum for England and Wales, to include a substantial proportion of young people under the age of 26.

Mr. Steen: The House will be most gratified to learn of the activity in the hon. Gentleman's youth department, but


perhaps he has overlooked the fact that there are nearly 250,000 young people under 21 who are unemployed, for whom his Department is both irrelevant and unsympathetic? Will he set up a national community work programme to give every unemployed young person an opportunity to do something to improve the conditions of life in his community, rather than merely fiddle while young people die of boredom?

Mr. Fowler: I am not a Minister in the Department of Employment. Apart from that, as I understand the hon. Gentleman's proposal as he has described it elsewhere, he envisages an element of compulsion in community service—

Mr. Steen: No.

Mr. Fowler: —which I would not conceivably accept.

School Inspections

Mr. Mawby: asked the Secretary of State for Education and Science whether he will give the number of reporting inspections by Her Majesty's inspectors of schools each year from 1960 to 1975.

Miss Margaret Jackson: I regret that these figures are not available. It is estimated that some 2,000 schools in any one year are subject to some kind of formal inspection by Her Majesty's inspectors. Her Majesty's inspectors also make numerous informal visits to schools in a largely advisory capacity.

Mr. Mawby: I am grateful to the hon. Lady for her reply. Does she agree that there may be a connection between the reducing number of reporting inspections and the fall in standards in school discipline and achievement?

Miss Jackson: No, Sir. I am not quite sure what the hon. Gentleman means by "reporting inspections". He may be referring to full inspections of particular institutions. Such inspections have always been comparatively limited in number. As a rule, they have involved only one type of school. For example, they have rarely been carried out in primary schools. If the hon. Gentleman considers the matter carefully, he will find that Her Majesty's inspectors are doing perhaps even more, in the way of contact and inspections in schools, but on a more informal basis, than in the past. I do

not accept that standards have fallen as greatly as he suggests. As he knows, we are concerned about standards. That is why the Department has set up the assessment of performance unit, for example, to which such work is directed.

Mr. Peter Bottomley: Is there an annual report from the Government inspectors? If there is, will the hon. Lady say what action follows from their inspections?

Miss Jackson: There is no annual report from the inspectors on each school in their arca—[HON. MEMBERS: "Why not?".] If there were to be annual reports, the size of the inspectorate would have to be considerably larger. As I know that Opposition Members are especially anxious to restrain public expenditure, I am sure that that is not a proposal that they would support. Her Majesty's inspectors publish a number of reports, many of them being surveys of special areas or specific age group studies which often cover a great number of schools—perhaps hundreds. It is that sort of work, along with their advisory rôle, that they have increasingly assumed in recent years.

Comprehensive Schools

Mr. Cope: asked the Secretary of State for Education and Science what guidance he will give to local education authorities about the optimum size of comprehensive schools.

Miss Margaret Jackson: There is no single ideal size for a comprehensive school. My right hon. Friend considers on their merits proposals made by local education authorities or governors in respect of particular schools and he does not consider that any useful purpose would be served by giving general guidance on the question of size.

Mr. Cope: Is the hon. Lady aware that one of the problems with comprehensive schools is that they are either too large or they have an inadequate sixth form? In those circumstances, is it not a mistake to force comprehensives upon local authorities that do not want them?

Miss Jackson: The hon. Gentleman is drawing a rather strange conclusion from his initial remarks. There are problems of varying size and efficiency, and


so on, in any kind of school organisation. We do not feel that there is an optimum size at which comprehensives can successfully be established and that anything above or below that size is inappropriate for a comprehensive school. We believe very much that the success of a school and the way it is run are very dependent on local conditions and circumstances. That is why we seek to study such conditions and circumstances very carefully before approval is given to such schemes.

Mr. Flannery: Is there not a great deal that is good and right about our educational system? The Conservative Party seems to beam the media and every criticism that it can against a system that is not only expanding but is expanding for the good. Is it not most unhelpful to use the size of schools as a basis for attacking comprehensive education—especially coming from a party that casually relegated 85 per cent. of our children, with no parental choice whatsoever, to the secondary modern schools, and never raised that matter at all?

Miss Jackson: There is a great deal in what my hon. Friend said. I must tell him that one of the most enjoyable aspects of being a Minister in the Department of Education and Science is the opportunity that it offers to visit schools and to see how different the position is—the devotion and expertise shown in the schools and the intelligence and personality of the pupils—from the picture of doom and gloom that one gets so frequently from the Opposition Benches.

Mr. Nicholas Winterton: Does the hon. Lady agree that comprehensive schools necessarily have to be large in order to provide the range of subjects that is demanded of schools? Will she, therefore, consider again issuing a circular to local education authorities about the organisation of comprehensive schools in order to break down their mammoth size? Will she give further consideration to the quality of teachers, because excellent, highly motivated teachers are required to manage and teach children in comprehensive schools?

Miss Jackson: I do not accept the hon. Gentleman's assumption that all

comprehensive schools must be large in order to offer a sufficient range of subjects. If as much devotion had been shown, over the years, to the question whether all the grammar schools that we have provided offered a sufficient range and variety of subjects, and whether their standards of education were as high as they could be, as is now applied to comprehensive schools, perhaps we should not be having the problems that hon. Members sought to highlight earlier, of a possible decline in standards.

HOUSE OF LORDS

Mr. Ridley: asked the Prime Minister if he intends to abolish the House of Lords.

The Prime Minister (Mr. James Callaghan): I shall be ready to consider any proposals to this end that the hon. Gentleman cares to put to me.

Mr. Ridley: The Prime Minister has not answered the Question. Does he intend to abolish the House of Lords? As two of his Cabinet Ministers and his Patronage Secretary voted to do so on 16th June, under the doctrine of ministerial responsibility when will they be parting company?

The Prime Minister: I congratulate the Patronage Secretary on his vote. I wish that I had been here. I might have joined him. I have never felt that the House of Lords was truly representative of the fine flower of democracy in Britain, but having attempted to pluck it once, in 1968, I found that it stung, rather, and I should be pretty careful before putting my hand there again.

Mr. MacFarquhar: Whatever my right hon. Friend's views, and my views, on the House of Lords as it is presently composed, does he believe that there is any place for a second Chamber in our constitution?

The Prime Minister: That is an interesting academic question. [HON. MEMBERS: "Answer it.") I am trying to work it out. I believe that there is a place for a second Chamber, given the history of this country, although many countries get on very well without one. I do not think that there is any theoretical verdict one way or the other.

Mr. Stokes: Is the Prime Minister aware that the House of Lords is extremely popular, is a bulwark against arbitrary one-Chamber government, and is a vital part of the British constitution?

The Prime Minister: I thank the hon. Gentleman and congratulate him upon his sterling qualities and the way in which he stands up for the other Chamber—something that could be done only by an excess of patriotism, but perhaps with rather less than his usual amount of perspicacity.

LAW COURTS

Mr. Corbett: asked the Prime Minister if he will pay an official visit to the Law Courts.

The Prime Minister: I have at present no plans to do so.

Mr. Corbett: When my right hon. Friend does so, will he confirm that when he said last week that he was having a change of mind about the Official Secrets Act, he meant that he was making it less restrictive for the Press in some areas, and not more effective? With the growth of both private and public powers, which could erode our freedoms, will he consider introducing a Bill of Rights which would make it easier for citizens to obtain redress when their freedoms were infringed?

The Prime Minister: I do mean making it less restrictive, but it follows from that that one can, at the same time, make it more effective. There are areas where I believe the Official Secrets Act should be effective. However, I noticed that a number of newspapers were doubting my bona fides. I am usually misunderstood about these matters, but it was the result of experience in this matter that led me to the conclusion that although, on the whole, as I said in evidence to the Franks Commission, I would have preferred to leave the Official Secrets Act untouched, I think the time has come to move in that direction, and the Government will have to bring their proposals forward. I can say that the House will find it an easy solution when we debate it in due course, but I think we should try to handle it and see how we can achieve a result.
The consultative document published recently has a very interesting and careful analysis of the proposals both for and against a Bill of Rights. My attention was first attracted to it by Mr. Justice Scarman. I think that the House will want to consider the matter very carefully.

Mr. Baker: Does the Prime Minister agree that the rule of law is important internationally, as it is nationally? Will he be a little more forthcoming about the action of the Israeli Government last weekend, which sought to establish a primacy of the rule of law over political movements that seek to achieve their ends though murder and piracy?

The Prime Minister: I do not think there is any doubt about this Government's attitude, or our predecessors' attitude, on the matter of hijacking and the establishment of the rule of law internationally. I have said—I made it clear yesterday—how much we welcome the fact that the hostages' lives had been saved and the hijacking attempt had failed. However, I do not think it necessary to embroil ourselves any further than that at the present time.

Mr. Hugh Jenkins: Will my right hon. Friend publish the terms of reference of the Houghton Committee in the immediate future? Will they embrace not only the particular case but make recommendations on the whole question of restrictions, as well as investigating the case in question?

The Prime Minister: I would certainly hope to give an answer on that in the near future, but it will be concerned basically, as I have emphasised before, with procedures for safeguarding papers rather than the judgments that flow from how a paper should be rated. It is that aspect of the matter that the Committee has agreed to look into.

Mr. Churchill: Regarding the maintenance of law at international level, will the Prime Minister convey to the Secretary General of the United Nations that it is the belief of the overwhelming majority of people in this country that the Israelis, by their daring and courageous action, have contributed more to the maintenance and upholding of law and order internationally than the Secretary General has done during his whole tenure of office?

The Prime Minister: I see no advantage in trying to play off the Israeli Government against the Secretary General, or seeking to attempt to make me deliver judgments on these matters. I think that as time wears on it will be seen that there are consequences which perhaps have not yet been foreseen. We should ourselves reserve judgment on the matter whilst expressing our full delight and appreciation of the fact that many hostages' lives were saved and that the hijacking attempt by the terrorists, which we all deplore and condemn, failed.

Mr. Sandelson: I agree largely with what the Prime Minister has said, but is my right hon. Friend nevertheless able to give details of any steps taken, or negotiations entered into, by the Secretary General of the United Nations with a view to securing the release of the hostages at Entebbe Airport?

The Prime Minister: I am not responsible for the Secretary General's actions and I am not informed whether he took any steps on this matter. I know personally, and from members of his own office, that he has attempted to settle the Middle East dispute in the past and has acted as a good friend to both sides. He is a servant of the world who has given very good service over many years. I do not think that on this one occasion he should be publicly rebuked from this Box in the House of Commons.

CHANCELLOR OF THE DUCHY OF LANCASTER (ARTICLE)

Mr. Mike Thomas: asked the Prime Minister whether the article by the Chancellor of the Duchy of Lancaster in the Sunday Telegraph on the economy on 20th June represents Government policy.

The Prime Minister: Yes.

Mr. Thomas: Does the Prime Minister agree in particular with his right hon. Friend's statement that what this country needs is not just investment but profitable investment, which makes good use of our resources, and that this must be the policy for the Government to follow? If so, what steps is he taking to follow it?

The Prime Minister: I thought it was a very good heading, which began:

No reason for self-denigration, gloom or dangerous prescriptions.
The article seemed in typical vein of my right hon. Friend, and it sparkled all the way through to the end of the cup. Regarding the matter of investment, I would say to my hon. Friend that the Price Code, on which my right hon. Friend, the Secretary for Prices and Consumer Affairs, answered questions yesterday, has now been revised. When all the particular interests have put their cases forward it should now provide an opportunity for investment at the right time, in this accelerating trade cycle. If British industry takes this up I believe that we shall be better placed than ever before, provided it is coupled with getting the best we can out of the existing investment that we already have.

Mr. George Gardiner: Will the Prime Minister assure the House that the cuts in public expenditure, which a number of his hon. Friends now tell us are necessary to make room for this investment, will be announced to the country and this House before we rise for the Summer Recess?

The Prime Minister: I do not think that I have anything further to add to what I have already said on this matter. I think my answers are quite clear.

Mr. Ron Thomas: Does my right hon. Friend not agree that report after report indicates that British investment allowances, and all the other aids to those so-called entrepreneurs, who gain so much support from the Opposition, perhaps the most generous among all the industrialised countries in the world, but that such people still fail to invest in Britain, while they find thousands of millions of pounds to invest overseas?

The Prime Minister: My hon. Friend raises a point that is worthy of investigation and study, namely, to what extent it is necessary for British companies which have overseas direct investment to maintain the level of that investment or, indeed, to seek to retain their profits abroad. This is a matter that I have been looking into very carefully. Certainly there is a very high level of investment overseas. We ought to make certain that the profits are remitted back as far as possible, if the investment takes place.
It is true that on occasions, as our predecessors found, additional allowances


did not encourage domestic investment to the degree that was expected. I think that the National Enterprise Board is one weapon for trying to help in that situation by the schemes it is producing. The other way, apart from ensuring that the firms concerned have adequate profitability, is to see that there is a likelihood of the trade cycle continuing for some time. That is what the leaders at Puerto Rico were concerned about, and I think it is essential if we are to succeed.

MINISTERIAL BROADCASTS

Mr. Lawson: asked the Prime Minister when he next intends to make a ministerial broadcast on the state of the nation.

Mr. Norman Lamont: asked the Prime Minister when he intends to make his next ministerial broadcast on the state of the nation.

The Prime Minister: I refer the hon. Members to the reply which I gave to the hon. Member for Blaby (Mr. Lawson) on 27th April.

Mr. Lawson: I am grateful to the Prime Minister for his second reply. Is he aware that when he does make this ministerial broadcast, to which we all look forward, he should be comforted by the knowledge that, whatever his friends below the Gangway think, we on the Opposition side of the House wish him the best of luck in the discussions on which he has just embarked with his Cabinet colleagues, with a view to cutting public expenditure?

The Prime Minister: With my lack of classical education, I hope I shall not be ruled out of order if I say timeo Danaos et dona ferentes.

Mr. Speaker: Order. Was that Welsh?

Mr. Heffer: Like you, Mr. Speaker, I would not know whether that was Welsh or anything else. Will my right hon. Friend indicate that when he next makes a ministerial broadcast he will explain to the nation what will happen if the various companies that are to get investment reliefs and higher profits do not invest? What steps will be taken by the Government to deal with those companies?

The Prime Minister: I agree with my hon. Friend that that is an important question. At tomorrow's meeting of the NEDC, at which I hope to take the chair, I shall be seeking the view of the CBI in regard to its attitude to member companies. From the contacts that I have had so far with Lord Watkinson, I believe that the CBI intends to encourage companies to undertake a high level of investment. As to what will happen if it does not succeed, I would prefer to wait for the moment rather than make a forecast. In regard to my answer to an earlier supplementary question, may I say, for the benefit of non-Etonians, that the phrase I used means "I fear the Greeks even when they bring gifts".

Mr. Norman Lamont: Is the Prime Minister aware that we welcome his recent statement to the effect that public spending next year will have to be cut? Should he not make it clear, however, that this is a major reversal of Government policy and is not due to changes in external circumstances, and that the only reason why these painful readjustments are being made is that the Government foolishly and stupidly overspent in the last two years?

The Prime Minister: No, Sir, I do not accept any of those qualifications. It is true that public expenditure has increased by 20 per cent. in the last three years. That is a very much faster rate than that represented by our gross domestic product, but it has had the result, among other social matters, of enabling our old-age pensioners, almost for the first time, to enjoy a good standard of living, although we would like to see it improve. In the case of nursery education for children under 5 years of age it has meant that provision in the last two years has increased by one-third. All these are valuable social aims, which have helped buttress the social contract. If, for a year or so, we now have to rein back, this will be understood by all those who benefit.

Mrs. Castle: Is my right hon. Friend aware that it is the chopping and changing in plans that is so demoralising and wasteful—for example, in the hospital building programme, where there can be a great waste of public money by incurring design costs for schemes that are not then pursued? Will he say exactly what


has changed since February of this year when the House received the results of the long-term review of public expenditure and what has led the Government to say that all the plans will now have to be reversed?

The Prime Minister: I agree with my right hon. Friend that it is demoralising where there is constant chopping and changing in Government policy. I think that public expenditure has suffered because of that. If I may go back over a decade, it was for this reason that when I was Chancellor of the Exchequer over 10 years ago we introduced the system of looking three or four years ahead at the level of public expenditure. But in trying to do that, we fell into the error of measuring increases only in terms of resources required, instead of looking also at the finances required. It is that correction which we are now having to make.
As for the question of what has changed since February, as regards the long-term plans for 1978–79 nothing has changed. What we are now considering is next year's public expenditure—for 1977–78.

Mr. Watt: When the Prime Minister makes his ministerial broadcast, will he reveal to the nation how much oil the oil companies are obtaining out of the Scottish sector of the North Sea? Will he also acknowledge that the SNP is the only party in this House that got its sums right? Furthermore, will he say that there is no need for any substantial cuts in the public sector if we tax the oil companies at a decent rate?

The Prime Minister: There is a pretty good rate of tax now being levied on the oil companies. As regards the other part of the hon. Gentleman's supplementary question, it would be more appropriate for the hon. Gentleman to make a broadcast rather than for me to make his points.

ENTEBBE AIRPORT (ISRAELI OPERATION)

Mr. Hugh Fraser: I beg to ask leave to move the Adjournment of the House under Standing Order No. 9, for the purpose of discussing a specific and

important matter that should have urgent consideration, namely
the events at Entebbe".
It has caused great amazement to many hon. Members that there has been no official Government statement in regard to the recent incidents at Entebbe airport. I believe that those events raise matters which are specific, important and urgent.
They are specific because the whole nation applauds what has happened. They are important for obvious reasons, and especially because of the agreement reached only last Saturday by the leaders of the EEC when it was agreed that there should immediately be a joint response to any act of terrorism, but a joint response has been totally lacking. They are urgent because no country is affected more than ours by the effects of terrorism.
The Prime Minister will have observed Early-Day Motions Nos. 498 and 499, signed by hon. Members on both sides of the House, which say in specific terms that the Government should offer their congratulations to the Israeli Government on their action and should condemn those who condone hijacking and acts of piracy. I believe that that is the general will of the people and that it is in the interests of the Government and of the House.
There is no question but that, unless there is international action on these matters, terrorism, far from being repressed, will increase. Therefore, I hope that the House will agree to deal with this matter under the Standing Order No. 9 procedure.
Unless the Prime Minister responds, perhaps I may be permitted to reverse his Latin quip by saying
Timeo Gallos non dona ferentes.
That means in Welsh "Fear the Welsh who bring nothing of value."
I believe that this is a serious matter which is of great concern to our people, who wish to applaud what the Israeli Government have done. We must show that there is international solidarity in the stand against terrorism, and this can be done only by a vote of confidence going out from Her Majesty's Government, and indeed by a vote of confidence going out from this House. Applause, please!

Mr. Speaker: The right hon. Member for Stafford and Stone (Mr. Fraser) asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he thinks should have urgent consideration, namely,
the events at Entebbe.
As the House knows, under Standing Order No. 9 I am directed to take account of the several factors set out in the Order, but to give no reason for my decision.
I have given careful consideration to all the representations made by the right hon. Gentleman, but I have to rule that his submission does not fall within the provisions of the Standing Order, and therefore I cannot submit his application to the House.

Later—

Mr. Faulds: On a point of order, Mr. Speaker. It is an abuse of the Standing Orders of the House for an hon. Member to try to introduce a matter to condone international piracy. It should be known abroad—and certainly it should be known in this country—that many hon. Members disapprove—

Mr. Speaker: Order. I realise already that the hon. Gentleman is seeking to advance a point of view alternative to a point of view expressed through a Standing Order No. 9 application. It is not in order to do that. We cannot debate the matter.

Mr. Faulds: Further to that point of order, Mr. Speaker. I am trying to stop an abuse of the House. It is not in order for Members of the House to seek to introduce, under the device of Standing Order No. 9, a partisan interpretation of an action which may only be described in international law as piracy.

Mr. Speaker: I may tell the House at once that I have been worried for some time—I am not referring to this afternoon's application—about the way in which applications under Standing Order No. 9 are being made. It is no good raising points of order about this matter. I have ruled on the matter. I said that I did not give it precedence.

LONRHO LIMITED (REPORT)

Mr. Lipton: On a point of order, Mr. Speaker. May I seek your guidance on the following matter? You will know that the report of the investigation into Lonrho Limited was made available to hon. Members at only 3.30 this afternoon. However, that report was given to the board of Lonrho on the basis of strict confidentiality on 5th March last.
Yesterday, the right hon. Member for Taunton (Mr. du Cann) gave extracts from the report to a Press conference. I should like to know, Mr. Speaker, whether you will investigate the circumstances in which that report was given in the form of extracts by the right hon. Gentleman to a Press conference yesterday when it was made available to hon. Members only this afternoon.

Mr. du Cann: Further to that point of order, Mr. Speaker. Although the hon. Member for Lambeth, Central, Mr. Lipton) did not have the courtesy to give me notice of this matter beforehand—[HON. MEMBERS: "Why should he?"]—in accordance with the usual traditions of the House—I shall be grateful if you will allow me the opportunity to say a short word by way of explanation.
First, may I plainly declare an interest. I am a director of Lonrho Limited. I have been a director of Lonrho for four years. I am proud to be a director of Lonrho.
The report of the inspectors appointed under the Companies Act is not a parliamentary paper. Therefore no questions of parliamentary privilege may rise on the publication of that report or any part of it.
Additionally, it is usual practice for the Department, when a report is made available, to request the board of a company to which the report is forwarded not to publish it until the Department has made up its mind whether it intends to publish it. That is what happened in this case. The report is not restricted in any way. There is no obligation whatsoever upon the company which receives the report not to publish it. If the company does not publish it, it refrains from doing so merely as a matter of courtesy and in response to the request.
In spite of the undertakings solemnly given by the officials of the Department of Trade to the lawyers acting for Lonrho that the publication of the report would not be made without at least a fortnight's notice, the company was given a mere 24 hours' notice.

Mr. Litterick: On a point of order, Mr. Speaker—

Mr. Speaker: Order. The right hon. Member for Taunton (Mr. du Cann) is making a point of order. It is an old custom in this House, with a sense of fair play, that if a charge is made by means of a point of order, if anyone is involved—as the right hon. Gentleman clearly is—he shall finish his statement, as the right hon. Gentleman is about to do.

Mr. du Cann: The company was given just over 24 hours' notice of the intention to publish the report. The company was therefore released from any obligation to keep silence. It must be appropriate for the company to defend itself and to give its view of the matters referred to in the report. That is what I did. I make no apology for doing so. I believe that what I did was perfectly right and proper. [HON. MEMBERS: "Disgraceful."] I said that I was proud to be a director of Lonrho, which gives employment to 100,000 people and which earns vast sums in foreign exchange for this country. It will be good for the report to be published and for the company to be encouraged to do successful business on the nation's behalf.

The Under-Secretary of State for Trade (Mr. Clinton Davis): Further to that point of order, Mr. Speaker—

Mr. Speaker: Order. I am on my feet. I must reply to the hon. Member for Lambeth (Mr. Lipton) and the right hon. Gentleman.
I was about to reply along the lines which the right hon. Gentleman used at the beginning. This is not a parliamentary paper. We do not wish to enter into a debate on Lonrho this afternoon. This point was raised as a matter of order. As it is not a parliamentary paper, I am not called upon to rule upon it.

Mr. Cryer: On a point of order, Mr. Speaker. Some disgraceful allegations were made by the right hon. Member for Taunton (Mr. du Cann) during the course of a somewhat dubious point of order, which seemed to be a commercial for Lonrho. Goodness knows, Lonrho needs a few commercials these days.
The Under-Secretary of State for Trade actually stepped to the Dispatch Box. In view of the disgraceful nature of the allegations which the right hon. Member made against the Department, surely it is in the interests of fair play that the Minister should be allowed to pursue that point of order so as to set the point absolutely clear.

Mr. Speaker: Order. May I say that we shall not debate Lonrho this afternoon. I am sure that neither the Minister nor anybody else wishes to debate Lonrho, especially upon a report which I understand came to Members only a quarter of an hour ago but which has been published in the Press. I do not know whether the Minister seeks to pursue the point. I hope that he does not wish to pursue the argument.

Mr. Clinton Davis: I wonder whether it was in order for the right hon. Member for Taunton (Mr. du Cann) to make an unprovoked and unnecessary attack upon people who are not able to defend themselves. I refer to the civil servants to whom the right hon. Gentleman alluded.

Mr. Speaker: Are there any other points of order?

Mr. Lipton: On a point of order, Mr. Speaker. I did not make myself clear in raising the original point of order. It is obvious that this report was made available to Lonrho on the basis of maintaining strict confidentiality. [HON. MEMBERS: "No."] That is the point which I seek to make. The report was made available on the basis of strict confidentiality. That strict confidentiality has been—

Mr. Speaker: Order. I have already ruled on that matter. This is not a parliamentary paper. I am not called upon to rule upon it.

STATUTORY INSTRUMENTS

Mr. Speaker: To save the time of the House, unless there is any objection I propose to put the Questions on the two Statutory Instruments together.

Ordered
That the Fishing Vessels (Grants) Scheme (Northern Ireland) 1976 (S.R. &amp; O. (N.I.), 1976, No. 149) be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Snape.]
That the Amendment of School Leaving Date Order (Northern Ireland) 1976 (S.R. &amp; O. (N.I.) 1976, No. 142) be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Snape.]

SCOTTISH ESTIMATES

Ordered
That the Estimates set out hereunder be referred to the Scottish Grand Committee:—

Class III, Vote 9, Fisheries (Scotland) and Herring Industry.
Class IV, Vote 17, Trade, Industry and Employment (Scottish Economic Planning Department).
Class VII, Vote 2, Housing (Scottish Development Department).
Class VII, Vote 3, Housing (Scottish Economic Planning Department).
Class VIII, Vote 4, Other Environmental Services, &amp;c. (Scotland).
Class X, Vote 2, Education and Libraries (Scottish Education Department).
Class XI, Vote 3, Social Work (Scotland).
Class XIII, Vote 22, Other Services: Scottish Office.
Class XVII, Vote 2, Rate Support Grant to Local Revenues (Scotland).—[Mr. Snape.]

INDECENT DISPLAYS (NORTHERN IRELAND)

3.48 p.m.

Mr. Robert J. Bradford: I beg to move,
That leave be given to bring in a Bill to make fresh provision in Northern Ireland with respect to the display, advertisement or distribution of indecent matter and to the use of machines for the viewing of indecent pictures; and for purposes connected with those matters.
The House, in its wisdom, gave leave to the hon. and learned Member for Thanet, West (Mr. Rees-Davies) to bring in a Bill which seeks to remove a public nuisance, namely the uncontrolled displays of indecent matters in the form of magazines and advertisements and the

uncontrolled use of machines for the viewing indecent pictures.
It is an encouragement to many outside the House who share the views of the hon. and learned Member for Thanet, West to note that an attempt is again being made to end the practice of subjecting young and old, immature and mature, willing and unwilling, to offensive, erotic materials. My only disappointment with the hon. and learned Gentleman's Bill is that it is not intended to apply to Northern Ireland. Perhaps this is for technical reasons which may be beyond criticism. Therefore, a comparable Bill is required to afford the people of Northern Ireland protection from the bombardment of indecent matter from which there is little or no escape.
I will not embark on a preamble which would outline the historical development of the pursuit to obtain or strengthen safeguards against indecent displays. This has already been done eloquently and cogently by many hon. Members from both sides of the House since the introduction of the Conservatives' Bill in 1973. But there are two observations that I should like to make.
First, Northern Ireland needs fresh legislation in this regard as much as any other part of the United Kingdom. The second observation is that Northern Ireland desires such new provisions and controls as are intended for any other part of the United Kingdom.
The steady increase in indecent matter and in the number of prosecutions to which a former Home Secretary referred in 1973 has not passed Northern Ireland by. On the pavements of most of the main streets in the city of Belfast one is confronted by some very explicit erotic magazines which surely offend the sensibilities of many people. In certain book stores it is impossible not to have the most suggestive matter flung in one's face.
Not only are these indecent magazines placed alongside more normal periodicals in many small shops, but magazines are actually interspersed with children's comics. The price asked for some of these most explicit magazines is as low as 20p and averages about 30p, which is not beyond the reach of young boys and girls.
No attempt is made, discreetly or otherwise, to arrange material so as to make a clear choice to view sexual magazines


necessary. Indeed, there appears to be an easy facility, particularly for very young people, to encounter erotic magazines and literature at a very early age.
In Northern Ireland, we have our share of machines which reveal that the butler is still suffering from cataract although his tenacity is breathtaking. No doubt plans are afoot to instal a "dial-a-thrill" phone-in facility, such as I understand is already available in London. All these things are in public arcades and amusement centres open to every member of the public.
My Bill would seek to remove from the streets and public places offensive matter and offending machines to locations which could be entered only after payment for such entry had been made, facilitating adults of 18 and upwards who had made a decision to view the materials displayed. Such a Bill is needed in Northern Ireland.
Secondly, such a Bill is desired in Northern Ireland. Although this Bill is not an attempt to impose new censorship measures, it is a challenge to those who believe that young people, and indeed those of older years, can remain impervious to the detrimental influence of indecent mater if exposure is incessant and unavoidable.
Young people will be inclined to accept that sexual expression whenever and wherever they choose and with whomever is available without reserve is the norm of society. The correlation between sexual experience and mutual love within Christian marriage will be rendered difficult, if not entirely impossible, by the exposure to magazines which suggest that one can do one's own thing and everything is up for grabs.
I do not think that many people in Northern Ireland are as disposed to accept, as some psychiatrists would have us believe, that our sexual tendencies are determined at the early age of five or

six and that no further influences matter at all. As for adults, it is a very brave person who will argue that exposure to indecent and erotic materials does not sometimes result in the most promiscuous behaviour which is both physically and psychologically damaging. Particularly it will be a brave person who will contend that when the disciplines of psychology and psychiatry maintain a stance of noble agnosticism.
This Bill of necessity has narrow terms of reference, as does its counterpart for Great Britain. It does not seek to define indecency, and it does not seek to attack the production of pornography—much as I would desire those two processes to take place at some later stage. It does not seek to make Northern Ireland a cleaner Province by challenging the concept that the public display of indecent material is inconsequential to young and old.
By implication the Bill contends that it is as much a nonsense to state that filth does not corrupt as to assert that beauty and wholesomeness do not enrich our society.

Question put and agreed to.

Bill ordered to be brought in by Mr. Robert J. Bradford, Mr. James Molyneaux, Mr. J. Enoch Powell, Mr. McCusker, Rev. Ian Paisley, Mr. John Dunlop, Mr. Wm. Ross and Mr. John Carson.

INDECENT DISPLAYS (NORTHERN IRELAND)

Mr. Robert J. Bradford accordingly presented a Bill to make fresh provision in Northern Ireland with respect to the display, advertisement or distribution of indecent matter and to the use of machines for the viewing of indecent pictures; and for purposes connected with those matters: and the same was read the First time; and ordered to be read a Second time upon Friday 16th July and to be printed. [Bill 188.]

PAY AND PRICES POLICY

Mr. Speaker: Before I call the Chancellor of the Exchequer to move the first motion, I should announce that I have selected the amendment in the name of the right hon. Lady the Leader of the Opposition, at the end of the Question to add,
'welcomes the Government's belated realisation that jobs depend upon profits and are endangered by excessive growth of public spending; recognises the need for restraint in pay bargaining; but deplores the absence of a convincing strategy for economic recovery based upon a prosperous private sector and the reduction of state spending and borrowing'.
I understand that it will be for the convenience of the House to discuss at the same time the following four Government motions:
That the Counter-Inflation (Continuation of Enactments) Order 1976, a draft of which was laid before this House on 30th June, be approved.
That the Limits on Remuneration Order 1976, a draft of which was laid before this House on 30th June, be approved.

Income tax (charge and rates for 1976–77) (No. 2)

That the Resolution of the House of 12th April (income tax (charge and rates for 1976–77)) be varied as follows—

(a) in paragraph (a) and the heading of the first column of the Table for '£4,500' there shall be substituted '£5,000';
(b) in the first column of the Table for '£2,000' where it first occurs there shall be substituted '£1,500';
but this Resolution shall not require any change to be made in the amounts deductible or repayable under section 204 of the Incomes and Corporation Taxes Act 1970 (pay as you end) before 27th July 1976.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provincial Collection of Taxes Act 1968.

Income tax (alternation of personal reliefs) (No. 2)

That—

(1) In section 8 of the Income and Corporation Taxes Act 1970 (personal reliefs)—

(a) in subsection (1)(a) (married) for '£995' there shall be substituted '£1,085';
(b) in subsections (1)(b) (single) and (2) (wife's earned income relief) for '£675' there shall be substituted '£735'.

(2) In section 14(2) and (3) of that Act (additional relief for widows and others in respect of children) for '£280' there shall be substituted '£350'; but this Resolution shall

not require any change to be made in the amounts deductible or repayable under section 204 of the said Act of 1970 (pay as you earn) before 17th August 1976.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.

3.58 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey): I beg to move,
That this House takes note of the White Papers entitled "The Attack on Inflation, The Second Year" (Command Paper No. 6507) and "Modifications to the Price Code" (Command Paper No. 6540).
I am grateful to you, Mr. Speaker, for having said that it will be possible to debate at the same time the two draft Orders and the two Ways and Means Resolutions. My right hon. Friend the Secretary of State for Prices and Consumer Protection and Paymaster-General will deal later in the debate with the second of the White Papers mentioned in the motion. I shall deal with the first, Cmnd. 6507, which sets the counter-inflation policy for the coming 12 months in the context of the Government's broader economic and social goals.
That White Paper begins by stating the Government's fundamental aims—to reduce unemployment, to maintain our social priorities, to eliminate our balance of payments deficit, and to build up British industry so as to sustain a new period of export-led growth. It explains that, if we do not get inflation under control, each of these objectives will be put at risk. The immediate task, therefore, must be to see that the United Kingdom inflation rate continues to decline until it is at least no higher than that of our main competitors abroad and that thereafter it stays at or below the average level experienced by industrial nations as a whole.
The White Paper is therefore not just a document about pay policy and the agreement reached between the Government and the TUC. It touches on every aspect of economic management and social policy, showing how each is related to the others as part of a comprehensive strategy designed to re-establish Britain as a leading industrial nation which can again offer the people a rising standard of living and social provision. It shows the importance of pay restraint in helping to keep down industry's costs and so


make British products more competitive in international markets. It stresses the need to give industry the confidence it needs to invest, to innovate, to find new markets and, above all, to provide new jobs.
Price controls must be modified to allow industry a better rate of return on the capital it employs and so enable it to take full advantage of the world economic upswing which is already under way. But, at the same time, the Price Code must continue in being so as to reassure people at work that their restraint on pay is not in vain but will continue to be reflected in a lower rate of price increases than would otherwise occur.
The White Paper explains how the Government plan to manage the economy so as to contain inflation and to ensure that industry has the necessary access to finance for its expansion. This means that we must exercise firm control over public expenditure so that planned totals are not exceeded; that we should finance a large part of the borrowing requirement from the gilts market and not from the banks, so that their funds are available to support industrial investment; and that we should make certain that demand does not grow so rapidly as to pre-empt the resources which industry so urgently needs. Because we must give priority to exports and investments, we cannot increase our general living standards in the immediate future.
The new pay limit, therefore, will contain domestic consumption and at the same time improve the competitiveness of British products in world markets. But it would be wrong to press this to a point where living standards were unnecessarily depressed. That is why I proposed the conditional tax reliefs described in the Budget.
A large section of the White Paper is rightly devoted to describing the quite remarkable achievements of the past 12 months. It is almost a year ago to the day that the Government published the White Paper "The Attack on Inflation". This was against the background of six months in which retail prices had gone up by more than 17 per cent. at an annual rate of nearly 38 per cent. Wage settlements at well over 30 per cent. were becoming the rule rather than the exception. In other words, ever-higher wage demands were chasing—but failing to

catch up with—ever-higher price rises in a vicious upward spiral. As Mr. Laurence Daly pointed out in his speech to the recent special congress of the TUC, for the miners to have pressed for £100 a week in those circumstances would have meant asking for £200 in two years' time simply to stand still.
The origins of this inflation lay partly in the huge increases in world prices of raw materials, and particularly of oil in 1973 and 1974. But let there be no mistake about it: the difficulties imposed by external forces were gravely compounded by the disastrous economic and industrial policies pursued by the previous Administration, and in particular—I know that I have the Conservative Front Bench with me on this, as it has made this point many times—by the unprecedented expansion of the money supply in their last two years. I have the impression that the whole of the Opposition Front Bench now agrees with the right hon. Member for Leeds, North-East (Sir K. Joseph) that the 23 per cent. increase in the money supply which took place in 1972, followed by the 28 per cent. increase in 1973, was a major cause of the inflation in 1974 and 1975.
On top of that reckless stimulus to inflation, the previous Government added a systematic policy of industrial confrontation to which the right hon. and learned Member for Surrey, East (Sir G. Howe) made a special contribution. As a result, by the time they left office they had contrived to alienate the working population of this country and to bring relations between the Government and the trade union movement to a new low. Observers at home and abroad were beginning to describe Britain as ungovernable.
The policies set out in last year's White Paper, and especially the voluntary £6 pay limit, were the fruits of an understanding between this Government and the trade union movement which began long before we took office and has been strengthened with every month that passes. The agreement on pay in particular represented our common determination to save the country from disaster. It was received by the Opposition Front Bench with the same sour and sullen sneering as the 4½ per cent. policy has been received by the Opposition this year

Mr. James Prior: Mr. James Prior (Lowestoft)rose—

Mr. Healey: The hon. Lady the Member for Gloucester (Mrs. Oppenheim) dismissed the attack on inflation as a
lifeboat without any oars, with no auxiliary engine and one, moreover, which could prove to be as leaky as a sieve."—[Official Report, 21st July 1975; Vol. 896, c. 198.]
The right hon. and learned Member for Surrey, East, said:
we say that this is abhorrent nonsense. This will not work … It will not survive." —[Official Report, 24th July 1975; Vol. 896, c. 899.]
That was the reception last year to the £6 pay limit. I see that there is one Rip Van Winkle on the Benches opposite who believed that the words then spoken bore some relationship to the truth, yet what in fact was the result?

Mr. Prior: After what the right hon. Gentleman has said, will he read the first paragraph of his own White Paper "The Attack on Inflation. The Second Year", published two weeks ago, in which he said:
But in the first year of the attack on inflation we have made a good start.
Why did he wait until July 1975, when the Government had been in office for 18 months, before he found it necessary to start attacking inflation?

Mr. Healey: If the right hon. Gentleman can tell me why he opposed us in making a start at that time, it might be easier to answer that question, because the fact is that the Conservative Party attacked the £6 pay limit. Now it is saying that it was a start to the attack on inflation. But the Conservative Party attacked it then and in attacking the 4-1 per cent. limit now.
Yet what in fact was the result? The right hon. and learned Member for Surrey, East, as already quoted, said:
This will not work … It will not survive.
Yet the voluntary pay policy, on which the Opposition poured such scorn, has been strictly observed throughout the economy, in both the public and private sectors. I know that the right hon. and learned Gentleman, who in a calmer mood is a moderate and reasonable fellow, will at least agree with me on that.
Even those trade unions which were originally opposed to the policy have accepted the decision of the majority. Up and down the country individual groups of workers, whether negotiating at local or national levels, have shown their common sense and patriotism by voluntarily observing the collective decision of the trade union movement as a whole. As the new White Paper says. their understanding has been the Government's greatest strength in tackling our difficulties.
As the months have gone by. the benefits of their understanding have been more and more clearly visible in the Retail Price Index. Last September, the yearon-year rate of increase in the index fell for the first time for over a year. It has fallen in each succeeding month since, little by little at first but much more dramatically over the last few months, when the effect of lower settlements was being felt on prices. Already the six-monthly rate of increase is well under half what is was over the same period last year, and the year-on-year increase is now down to 15-4 per cent. With the occasional hiccup here and there, the yearon-year increases in basic wage rates and average earnings indices have also declined substantially from last year's peaks.
This is good progress by any standard, but, of course, it is not enough. Our rate of inflation is still higher than the inflation rates of our main competitors, particularly those of Germany, France, Japan and the United States. Notwithstanding the success of the £6 policy, earnings in Britain are still increasing faster than elsewhere. Between the second and fourth quarters of 1975, earnings per head in manufacturing in the United Kingdom rose by 12·9 per cent. In France and Japan they rose by 7·3 per cent., in Germany by 5 per cent. and in the United States by only 4·2 per cent. This, of course, is nothing new. If one looks at the figures over the last 15 years or so, the increase in earnings per head in manufacturing in the United Kingdom has been consistently higher than that of most other industrial nations, although the growth of productivity has been less.
Even now, therefore, we are still paying ourselves more than we are earning. We could not succeed in bringing down our rate of inflation still further if we were


to go on in this way. That is why, in my Budget Statement on 6th April, I made clear that over the next year the increase in pay would have to be less than half what it has been under the £6 policy in order to achieve our objective for inflation.

Mr. Ron Thomas: I am a little concerned that my right hon. Friend might be suggesting that it is the working people who control the level of productivity. Surely the main ingredient in the absence of an increase in productivity in British industry is the lack of capital investment.

Mr. Healey: The rate of capital investment in the United Kingdom is far too low although, interestingly, not lower that it has been in the United States in recent years. The main reason for the deplorably low rate of increase in productivity in Britain is the poor use made of existing capital investment by both sides of industry. That is not the responsibility of the trade union movement alone. The study recently carried out by Professor Dudley in the West Midlands for the West Midlands Chamber of Commerce suggests that the major responsibility lies with management.
I make that point in answer to my hon. Friend the Member for Bristol, North-West (Mr. Thomas) because it should be common ground on both sides of the House that if we want to see a rapid increase in output in this country—as I hope we all do—it will be much more easily achieved by making better use of existing investment than even by a massive increase in the rate of investment. I apologise, Mr. Speaker, for that somewhat lengthy answer to the intervention, but the point raised by my hon. Friend is of great importance.
As the White Paper indicates, the new agreement reached with the TUC on a further year of strict voluntary pay restraint meets the objective I have just mentioned. The House will already be familiar with details of the new pay limit, and I shall not repeat them now. The important thing is that the limit itself represents an increase of about 4+ per cent. on average in wages and salaries, which is below what any of our main competitors expect to be facing over the next 12 months. Moreover, the extreme

tightness with which the rules are drawn will restrict to the minimum any additional increase in earnings over and above the basic limit. That is why I am able to ask the House to legislate for the full tax reliefs I described in my Budget speech.
I know that the new pay policy is a tough one. I believe, however, that one reason why it has proved acceptable to the trade union movement is that it is also a fair one It applies to all people at work. There is no provision for particular groups to get exceptional increases. Moreover, despite what we were told three months ago by those who consistently underestimate the intelligence of ordinary men and woment, the average worker has had no difficulty in understanding that he will be better off in real terms with the new pay limit and the tax reliefs attached to it than with a higher pay limit and no tax reliefs.

Mr. J. W. Rooker: He could not understand the Child Benefit Scheme.

Mr. Healey: I think that the Child Benefit Scheme is well understood, and that is the reason for some recent events.
Nevertheless, I doubt whether many hon. Members would have predicted six months ago—I am sure that my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) would not have predicted—that the British trade union movement would, of its own free will, accept a pay limit for the second year of our counter-inflation policy which is under half as high as that in the first year, and would do so by a majority of nearly 18 to one, compared with a majority of about two to one in favour of the £6 policy last year.
I hope that there will be no disagreement anywhere in the House that this is an impressive demonstration not only of the ability of the British people to understand and accept the nation's needs in a crisis but of the response which a British Government can evoke from those to whom they are responsible—provided that the Government can prove that they share their aspirations and are prepared to tell them the truth.
The new agreement has, if anything, made even more impact on opinion abroad. If I may pick two tributes out


of the many which I have seen—[Interruption.] I wish that the right hon. Member for Lowestoft (Mr. Prior) would not keep muttering about unemployment when the policy to which he and the Opposition Front Bench have dedicated themselves in the last year is, on the admission of the right hon. and learned Member for Surrey, East, calculated to produce a massive increase in prices and unemployment in the current year.
As I was saying before I was so discourteously interrupted by the right hon. Gentleman, the EEC Commissioner for Economic and Financial Affairs stated on 22nd June that the recent $5·3 billion standby had been offered to Britain by the Group of 10 because the evidence convinced them that Britain is now definitely on the road to recovery. The West German Chancellor, Mr. Helmut Schmidt—who is often, perhaps surprisingly, held up to us by the Leader of the Opposition as a model we should all follow—told his Parliament last week:
The encouraging progress in Great Britain towards a new social consensus between the Government, unions and employers, which was received with applause in Puerto Rico, justifies the display of increased faith in the British pound.

Mr. Nigel Lawson: The Chancellor of the Exchequer referred to the S5-3 billion standby. Will he tell the House how much of that has been used?

Mr. Healey: Yes, I could tell the House but I shall not do so because the hon. Member for Blaby (Mr. Lawson), who is a deep and long-standing student of these financial questions, knows that if I were to give any indication of how much has been drawn or spent I would be giving an indication of our intervention policy, and that is something which no Government should ever do. "A good try" I would say to the ageing Alcibiades below the Gangway. I have said that before, but I thought it worth repeating on a hot afternoon. It is a good try, but the hon. Gentleman well understands why I cannot answer his question.

Mr. Kenneth Baker: Will the right hon. Gentleman give way?

Mr. Healey: No, I fear not. I owe it to both sides of the House to give

the right hon. Member for Sidcup (Mr. Heath) the opportunity to explain the views which were so unfairly traduced in a recent article in The Times, which he has undertaken to correct in his speech today.

Mr. Edward Heath: I gave no indication when I would attempt to catch Mr. Speaker's eye. I am quite happy for the Chancellor of the Exchequer to give way to my hon. Friend the Member for St. Marylebone (Mr. Baker).

Mr. Healey: In that case, I give way with the greatest pleasure in the world.

Mr. Baker: Does not the Chancellor accept that the answer he gave to my hon. Friend the Member for Blaby (Mr. Lawson) will not assist Government policy? About a fortnight ago the Government said that they were not using the standby credit. Last Thursday or Friday the Treasury said that the Government were using the standby credit. There is a great deal of suspicion about the extent of the use of the standby credit. Does not the right hon. Gentleman accept that, unless he comes clean and says how much he has used, he may be depreciating the estimate of the value of sterling overseas?

Mr. Healey: If the hon. Gentleman believes that, I advise him to look at the course which sterling has followed in the last few days.
When I was asked at Question Time a little over a fortnight ago whether we had drawn, I said "No". We have drawn since then, but I shall not tell the House how much. The hon. Member for St. Marylebone (Mr. Baker), who, I believe, held a distinguished position as fag or something similar to the right hon. Member for Sidcup, should understand at least part of our financial affairs a little better than to make that preposterous remark.
I remind the right hon. Lady the Leader of the Opposition, whose passionate attachment to my friend and colleague the Chancellor of the Federal Republic of Germany is well known and understood, that the Federal Republic, like the other countries which contributed to the recent standby, has put its money where its mouth is.
The agreement which the Government have reached with the trade unions has received overwhelming support from the mass of the British people and a very generous welcome from the CBI. One question which the House will want to study over the next two days is why an agreement which received such universal endorsement from both sides of industry in Britain is receiving such sour, sullen and grudging support from the Opposition Front Bench. There is an extraordinary contrast between the constructive attitude of those who actualy represent the management side of industry and the Opposition, who have contrived to alienate themselves from both sides of industry at once.

Mr. Nicholas Ridley: Particularly at Rotherham.

Mr. Healey: I am delighted to see that my young Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) is listening as effectively as ever from the Benches opposite. I hope that he succeeds in addressing us from a vertical position later.
The Opposition's amendment makes a formal attempt to curry favour with British industry, whose confidence they so obviously lost recently and of which the right hon. and learned Member for Hexham (Mr. Rippon) never ceases to complain. But they should take note of the views of industry as expressed by the CBI and chambers of commerce all over the country. They and the British people, unlike the right hon. and learned Member for Surrey, East, do not regard the new pay agreement as an
onslaught upon their standard of living and freedom generated and forced down their throats by ageing doctrinaire, prejudiced. Socialist trade union leaders."—[Official Report, 11th May 1976; Vol. 911, c. 375.]
The right hon. and learned Gentleman recently confirmed on television that he still holds those views. The country will feel that that sort of offensive claptrap does even his own party a disservice. I am sure that the tone of his speech this afternoon will show that the message has finally sunk in. He must recognise that playing politics with this issue pleases no one and that he is beginning to irritate his most devoted supporters—if he has any.
I hope that the right hon. and learned Gentleman will take note of the warning

given to his leader in the Spectator recently. It said of the right hon. Lady:
Her tone has been relentlessly partisan but she has so far failed to unify even her own Party, let alone the nation.
That, I fear, is nothing but the truth, and we shall, no doubt, get further evidence of that over the next two days. I hope, despite the coyness with which the right hon. Member for Sidcup disguises his intentions about speaking in the debate, that he will give us and the country and the editor of The Times an opportunity of understanding his views. [Interruption.] The right hon. Member for Lowestoft is muttering away again on the Front Bench, but he is well known for his verbal incontinence.
Perhaps the most important aspect of the new agreement, and the reason why it has evoked so much admiration from our friends abroad, is that it means that Britain will be one of the few countries in the world which can look forward to experiencing a rapid recovery over the next 18 months with a rate of inflation which is falling, not rising. Indeed, the £6 limit has already helped to put us in that position. We are one of the two countries in the European Community whose rate of inflation has fallen over the last three quarters. In all other countries it has been rising.
As Commissioner Haferkamp pointed out at the tripartite meeting of the European Community on unemployment in Luxembourg the week before last, in the European Community as a whole the rate of inflation rose in the first months of this year to an annual rate of 13 per cent. compared with an annual rate of 9 per cent. in the last six months of last year. So far as we can tell, it is still rising. During that period our rate of inflation was falling steadily, but we still have a little way to go before we get down to a year-on-year rate of 13 per cent. If the Opposition would like to put their money where their mouths are, perhaps they can meet me behind Mr. Speaker's Chair after the debate. I would not be surprised to find the rate of inflation in some of the countries which compete with us moving up past ours in the coming winter as we continue to move downwards.
Of course, the new pay agreement on its own is not the complete answer to all our economic problems or even to the


problem of inflation. But without it I do not believe that we can hope to solve any of our problems. With it, they all become soluble at last—although I do not claim that they are yet solved.
I now pass to some broader aspects of our economic and industrial recovery in which the new pay agreement pays such a vital role. In concluding my Budget speech three months ago I predicted that, provided we got a low pay limit and I was able to implement the additional tax reliefs, our gross domestic product should grow by about 4 per cent. and manufacturing output by about 8 per cent. in the year to mid-1977. The Opposition were sceptical about those forecasts being too optimistic, but it now looks as if growth in both cases will be somewhat higher. The official index of industrial production has risen faster than expected in recent months and I see that both the CBI and the London Chamber of Commerce surveys take the view that a rapid recovery is now in progress.
Moreover, the increase in output is based above all on exports, which are also growing faster than expected because world trade is growing faster than we expected a few months ago—contrary to the fear of some of my hon. Friends. Unemployment should be falling before the end of this year from a level which is already lower than pessimists were predicting last year. For those and other reasons, the public sector borrowing requirement this financial year should be lower than the £12 billion that I forecast in my Budget speech.
On the other hand, the increase in commodity prices has come sooner and has been somewhat sharper than we expected, and this, together with the depreciation of sterling, means that we are unlikely to reach last year's original target of under 10 per cent inflation as soon as we hoped. But the year-on-year increase in the RPI should still be down to international levels by the end of 1977.
The rate of growth we now foresee for the coming year is consistent with getting unemployment down to 3 per cent. in 1979—the objective that we have set ourselves. But to maintain that progress over the next three years will require continuing vigilance in three areas of economic policy

First, we must do our best to identify and remedy the sort of bottlenecks in industry which in the past have tended to produce overheating at high rates of growth. We had a complete seizure of industrial growth in 1973 because of bottlenecks. Second, we must ensure that our monetary policy is not allowed to refuel inflation. Third, we must see that our fiscal policy is consistent with our counter-inflation policy and that it leaves industry with sufficient resources to permit investment and exports to rise to the level required.
The Government have already taken many steps since the middle of last year to reduce the problem of bottlenecks—by their programme for accelerating certain investment projects and for restructuring key industries, such as ferrous foundries, where shortages of capacity might otherwise be expected. We have also doubled the money available for training people in the skills which recovery will require. At the meeting of NEDC tomorrow we shall be discussing reports from 37 working parties on sectors covering some 60 per cent. of manufacturing industry. We shall be considering what further action is required to deal with capacity constraints. No doubt hon. Members will have seen that the CBI is putting its full weight behind the exercise. Indeed Lord Watkinson, a former colleague of right hon. and hon. Members on the Opposition Front Bench, paid tribute to the work being done by the NEDC in industrial policy in this way.
The House should recognise that one of the most important contributions towards removing bottlenecks and maintaining a steady flow of supplies to industry during the upturn will come from the dramatic fall in the number of days lost through industrial disputes. In the first five months of this year we lost well under half as many days as during the same period last year, and last year we lost only one-quarter as many days as in 1972. I believe that the continuity of supply to industry in our very interdependent industrial structure is probably the most important single factor if we wish to maintain a high rate of growth over the coming years. There could be no more striking illustration of what the whole of industry can gain from the


existence of a Government who have the confidence of the trade unions.

Mr. David Crouch: When the right hon. Gentleman spoke of industrial production rising and the confidence of the CBI and the chambers of commerce, he did not give a figure. I understand that the rise in industrial production over the past six months has been only 1 per cent. Can the Chancellor comment on that?

Mr. Healey: The rise in GDP has been 1 per cent. a quarter for the past two quarters. That would be an annual rate of 4 per cent., if it were steady, which is the rate I forecast in my Budget speech. Recent evidence suggests that the increase in GDP in the coming year is likely to be about 5 per cent. rather than 4 per cent. and that the increase in industrial output is likely to be about 9 per cent. rather than the 8 per cent. I then forecast. If the hon. Gentleman studies the Financial Times survey, which I think appeared in yesterday's issue, or the CBI survey yesterday, he will see that there is a great deal of detailed collateral evidence supporting this revision of the forecasts which I have just described.
In monetary policy our record makes a dazzling contrast with that of our predecessors. Never since we came to power has the growth in M3 exceeded the growth of money national income, so it has always been exerting a downward pressure on prices in support of the Government's policies. In the last three banking months to May, the growth of the money supply—M3—was at an annual rate of just over 11 per cent. That compares with 23 per cent. in 1972 and 28 per cent. in 1973, the last two years in which the Conservative Party was in power.

Mr. Tom Litterick: For the benefit of my constituents, will my right hon. Friend translate the code signs, M3 and so on? The public listen to these debates, even if through the distorting medium of Press and television, and they would like to know what these things mean.

Mr. Healey: In a nutshell, if we can keep the money supply consistent with the growth of money GDP—[Interruption.] Let me put it this way. I take my

fate in my hands when I try to convert into intelligible language some of the uniformities discovered by academic economists. Broadly speaking, however, if the Government allow more money to slosh around in the economy than the value of the goods the economy is producing, we have high rates of inflation, which produce a seizure in the economy and a large and increasing balance of payments deficit. That is a major threat to jobs, as was discovered from the experience of the previous Government.
One of the few things for which we must be grateful to the right hon. Member for Leeds, North-East, whose cheery face I now see beaming at me from the Opposition Front Bench, is that he has finally persuaded his profligate colleagues —at the cost of admitting that he was one of the most profligate when he was last in power—that the way in which they handled the money supply was a major contributor to inflation in the following two years. I do not think that I am being unfriendly or unfair to the right hon. Gentleman. I see from the way in which he is biting his lip that although he is determined not to nod his head, as he always did previously when I made this point, at least he is not shaking it.

Mr. Peter Hordern: The Chancellor, who was giving a lesson in monetary economics to his hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick), will appreciate that the supply of money sloshing around in the banks has risen by more than 20 per cent. each quarter during the past three quarters, as measured by Ml. It is only a question of time—-a very short time at that—before the present recovery of the economy competes with the Government's own requirement for funds. Therefore, will the right hon. Gentleman now tell the House what proposals he has to cut public expenditure?

Mr. Healey: I was just coming to the point which the hon. Gentleman has raised, but I think that it would be carrying cruelty too far if I tried to inflict on the House and my hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick) an explanation of how M1 differs from M3 and M2. I shall ask him to have a private word with the hon. Member for Blaby, but not to take too


seriously what the hon. Gentleman says. [HON. MEMBERS: "Answer the question."] I am coming to the point made by the hon. Member for Horsham and Crawley (Mr. Hordern).
I shall continue to monitor the movement of the monetary aggregates with the greatest care. If it becomes clear that present policies need to be reinforced, I have already made clear my readiness to take the appropriate further action. I shall make sure that there is not excess liquidity in the system, by whatever mix or measure seems most appropriate at the time.
In my answer to the right hon. and learned Member for Surrey, East on 7th June, I stressed that the most important objective now was to continue to finance a large part of the borrowing requirement by sales of gilts outside the banking system, and I announced a new long-dated stock at an attractive rate of interest. On another occasion other measures, such as a call for special deposits, might be more appropriate.
I ask the right hon. and learned Gentleman to compare my record in this area with that of the party he represents when it was in office. I think I have some grounds for asking the House to believe that I mean what I say. I have kept the money supply under very strict control the whole time I have been Chancellor.
The White Paper stresses that, in addition to controlling the growth of the money supply,
the Government are equally determined that the expansion of productive capacity and exports should not be held back by competing public sector demands for finance",
and that they will reinforce their policies if necessary by further action in the fiscal and monetary fields.
On public expenditure, I have already said that there is no economic case for changing our plans for the current year but that we are determined to ensure that the planned total of expenditure is not exceeded. Cash limits and the improved financial information system for Government expenditure are playing a key role in this. The new arrangements for monitoring the expenditure of local authorities have already proved their worth. In agreement with the Consultative Council on Local Government Finance, the Govern-

ment have made it clear that local authorities must bring their estimates for the current year within the White Paper figures. Arrangements have also been introduced for much closer monitoring of claims on the Contingency Reserve.
It is worth pointing out that this year the nationalised industries will be making their contribution towards reducing net public expenditure. The subsidies initiated by the previous Government to restrain prices have now been largely phased out, except for some subsidies still to be paid to British Rail and other undertakings for long-term reasons of transport policy.
It is worth drawing the attention of hon. Members, particularly the Opposition, to what the Financial Times said in its editorial yesterday:
The attempt to use the nationalised industries to suppress inflation did not hold down the price level. All it did was to put a brake on price increases in 1972–74 at the expense of a sharp acceleration in 1975".
It went on to point out how encouraging it is that the coal, gas, electricity and steel industries and the Post Office are expected to finance internally a higher proportion of their capital spending than has been achieved since the mid-1960s. The previous Government's handling of the nationalised industries, like their profligacy in regard to the money supply, was a major cause of the inflation with which we have been wrestling in the last two years.
I suppose that at this stage I should say a word or two about the addendum which the Opposition have put down to our motion. I cannot say that I am surprised by it. This Opposition have lost their power to shock or, indeed, to excite the most feeble interest in their activities. But I must confess to feeling a flicker of curiosity when I read the actual words of the addendum and reflected on the hours of disputation between competing economic theologies which led to their recognition of the need for restraint in pay bargaining. In other words, they want to take advantage of the popularity of the pay policy without actually saying that they agree with it. If that is not the case, and if there is some other explanation for these weasel words, no doubt the right hon. and learned Gentleman will tell us presently.
I wonder how many Opposition Members, when they drafted the terms of their


addendum yesterday afternoon, had read the words that appeared in The Times yesterday morning. In case they had not done so, let me repeat them. These are the words of The Times, not the most conspicuous supporter of the present Govemnment's economic policies or, indeed, in these days, those of previous Governments, though it is no doubt quite devoted to the policies of the Front Bench opposite as long as it is in Opposition.
An article in the City section of The Times yesterday said:
If sound finance consists in holding public expenditure and limiting the rate of growth of the money supply, there must be some irony in the fact that in the last decade it has happened only under Labour Governments.
Those words are true, and I do not believe that any right hon. or hon. Member can deny their truth. They will remain true and, of course, they are the final answer to the windy rhetoric that we get from Opposition Members and which is so rapidly exposed as flapdoodle whenever they exercise responsibility.
I might make just one other point about the Opposition's addendum. They appear to attach enormous importance to the health of the private sector and yet they attack those policies, like the pay policy, on which the private sector is to depend in part for its help in the coming years. May I ask the Opposition to read the wise words of Lord Watkinson, one of the most distinguished adornments of this Front Bench when the party opposite was in power some 15 years ago, though I have no doubt that the right hon. and learned Gentleman would regard him as an ageing and prejudiced Conservative industrial leader. According to the Financial Times, Lord Watkinson, indicating the CBI's position in the coming discussions with the Government, suggested
that industry was willing to accept many Government policies of which it disapproved, including the nationalisation of shipbuilding and aerospace, the establishment of the National Enterprise Board and the development of sectoral planning agreements, provided the Government acted on its express belief in the need for a thriving and profitable private sector'.".
He went on to say that
The Government has … accepted the need for profit in industry and the diversion of

resources into the productive sector. It's our job now not to argue about where the mixed economy has got to go but to accept that it's here … make it work.
He drew the conclusion, on behalf of British industry, that it is now our job not to argue about where a mixed economy has got us but to accept that it is here and make it work.
The overwhelming majority of men and women in this country will share those sentiments even though they do not share all the political views and principles of many of my right hon. and hon. Friends. They are asking themselves when the Conservative Party, which is the only party on the Benches opposite which could ever be expected to form an alternative Government, is to come to terms with reality and when it will drop the kind of nonsense expressed by the right hon. Member for Leeds, North-East that an economy cannot live as a slave and must be free with the implication that as long as there is any public element in the economy we have some kind of irremediable contradiction in the system.

Mr. Cecil Parkinson: Does the right hon. Gentleman accept the system?

Mr. Healey: Of course we do, and we are making it work. If the hon. Gentleman cares to go to anybody who is actually working in industry, he will find that there is far more confidence in those who are responsible for industry, on both sides of the shop floor, than there is in the Conservative Party.
I ask the House to reject the Opposition's addendum. I appeal to the Opposition to withdraw it. Let us make a fresh start in these two days. Let the Opposition put their motion where their mouth is. Let them express their confidence in the road on which we are moving. If they do not do so, I ask the House to reject the Opposition's addendum, and I commend the White Paper to the House as offering the only sure set of policies to succeed in carrying through the attack on inflation for a second year. So that those policies can be fully implemented, the House will be asked at the end of this debate to affirm the two draft Orders laid before Parliament on 30th June and


also to pass the Ways and Means Resolutions relating to the conditional tax reliefs.

4.45 p.m.

Sir Geoffrey Howe: I beg to move, at the end of the Question, to add:
welcomes the Government's belated realisation that jobs depend upon profits and are endangered by excessive growth of public spending; recognises the need for restraint in pay bargaining; but deplores the absence of a convincing strategy for economic recovery based upon a prosperous private sector and the reduction of state spending and borrowing".
The amendment stands in the names of my right hon. Friends and myself.
I have to tell the House that my hon. Friend the Member for Gloucester (Mrs. Oppenheim), who was hoping to open the debate tomorrow afternoon, if she were able to catch your eye, Mr. Deputy Speaker, is unfortunately unwell this afternoon and cannot be here. I am sure that the reason for her absence will be understood.
During the present Parliament the House has heard some fairly disgraceful speeches from the Chancellor of the Exchequer, but none, I think, has reached the new low of abysmality which we have heard this afternoon. Never has the House had to tolerate throughout his speech, and apparently throughout mine, a man so pleased with himself with so little cause for pleasure. He is very easily pleased. He must be. The Chancellor has spoken of the offensive claptrap on the part of some of my hon. Friends. There is no greater expert in this House in offensive claptrap than the Chancellor himself.
The idea that the Chancellor, of all people, should seek to castigate my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) by describing anything he says as nonsense—and in the patronising style in which he did so—is absolutely disgraceful. The hon. Member for Birmingham, Selly Oak (Mr. Litterick) said that the Chancellor should explain economic policy. The Chancellor was opening a two-day debate on two key documents of the Government's economic strategy, and he told us precisely nothing. One can only reach the conclusion that there must be all kinds of strange developments taking place within the Cabinet and the Treasury, making it impossible

for him to tell us anything further than he has told us this afternoon. He spoke of playing politics, but for the Chancellor of the Exchequer to come to this House in a debate of this seriousness and to say as little as he said this afternoon, and with such frivolity, is playing politics in the extreme. I read some time ago a profile about him by a hapless journalist in which it was said that one of the phrases he was likely to apply to himself was "intellectual thug". This afternoon he has concealed his intellect a great deal more successfully than he has controlled his thuggery.
The Chancellor has also resorted to several of his characteristic diversionary tactics, appearing to claim credit, of all things, for what he saw as the quite remarkable achievements of the last 12 months. We are not yet quite halfway back to the level of inflation of which he was boasting two years ago, we have a long way to go before we get down to 13 per cent.—and a heck of a long way to go before we get back to 8·4 per cent.
The Chancellor of the Exchequer also spent some time on his favourite diversionary tactic by talking about monetary policy and the respective role of both parties in that connection. I want to know for just how long the Chancellor in this respect can go on riding two horses at the same time with such disreputable inconsistency.
Let me take the right hon. Gentleman back to what he told the nation in October 1974. On that occasion, he said that the rate of inflation was down to 8·4 per cent. He was presenting himself for all the world as though he was a Chancellor of the Exchequer in competent charge of a real-life economy. He came before the House of Commons with the verisimilitude of a Chancellor of the Exchequer in July 1974 saying, in his egotistic style, "I find it possible to give away additional money to the nation." He came before the House in November 1974, again in apparent control of the situation, saying "I shall give away more money" —only, let it be said, to redress the huge extractions that he had made with such recklessness in his first Budget. But he was giving every sign of being a man in charge of the economy and a Chancellor of some responsibility.
The right hon. Gentleman told us what the nation could expect if it returned a Labour Government in October 1974. According to both the right hon. Gentleman and the Prime Minister, nothing was too bright for the descriptions of the economy of which they were in total charge. The then Prime Minister talked about the social contract working because "we are making it work." He said that it was the Labour Government's answer "in the short term, the medium term and the long term to the problems of a modern industrialised society." Later, we were told that unemployment was beginning to fall, that the balance of payments showed a substantial improvement, and that the pace of inflation and price rises was moderating. But now we are being inundated with gloom and doom.
Where in that analysis was there any reference, right or wrong, to the monetary or fiscal policies of the previous Government? How is it possible for the Chancellor of the Exchequer, with any credibility, to rely now, two years after taking charge of the economy, on the consequences of fiscal and monetary policy as long ago as that? The right hon. Gentleman cannot have it both ways. Either he believed what he said in those proud boasts about his magnificent control of the economy in October, in which case he was manifestly incompetent to do so, or he did not believe what he said, in which case we must draw even worse conclusions about his character. But he cannot go on having it both ways.
Then the right hon. Gentleman comes before the House, in a way which must surprise many of his hon. Friends below the Gangway, as a kind of perfect do-it-yourself self-confessed monetarist, able to explain these technical terms—

Mr. Eric S. Heffer: Nothing surprises us.

Sir G. Howe: Nothing surprises the Chancellor's hon. Friends below the Gangway. I am sure of that. They have the misfortune of knowing him better than we do. But he was describing himself in this way, as a self-confessed monetarist, as a man of immense virtue who followed the most superb monetary policies with tremendous consistency.
However, he must make up his mind how he wishes to use monetarism. Is it

to be used as a term of abuse when it is convenient to denounce my right hon. Friend the Member for Leeds, North-East? Is it to be used as an alibi when it is convenient to rely on Lord Barber years after he has left the Treasury? Is it to be used as a halo with which to astonish the right hon. Gentleman's hon. Friends below the Gangway? He cannot have it all three ways, and it is about time that he stopped trying to lay the responsibility for his own disastrous management of the Treasury on the policies of the previous Government.
The Chancellor points lamely to my right hon. Friend the Member for Leeds, North-East. However, it was the Chancellor himself who told us in a debate on 29th January of this year that he did not believe that the most significant cause of the inflation of the past 12 months was monetary policy. He believed that the most significant cause was what he described as the disastrous round of wage inflation which began in November 1974. So he cannot have the game all ways and in the middle. It is time that he accepted responsibility for the disastrous way in which he has managed the economy.
It is important to put the record straight about the policies of the previous Administration. That Government, throughout almost the whole of their time in office, had to face a Labour Party in opposition of unique irresponsibility, clamouring in support of every pay claim and every demand for the expansion of public expenditure. When Lord Barber, as he now is, came to this House in December 1973 in response to the oil crisis and announced his intention to introduce expenditure cuts of £1,200 million, what thanks did he get from the right hon. Gentleman and his party? We were denounced for savaging the social services. But, years later, after the Chancellor's incompetence, he is now facing the British people with the consequences of catching up with the adverse change in the terms of trade which took place at that time, which we had the courage to face up to then and which he has only begun to face up to after 18 months in office.
Let us consider this astonishing White Paper in relation to the point raised by my right hon. Friend the Member for Lowestoft (Mr. Prior). This Government have been in office for two and a half


years. We look at the opening two paragraphs of the White Paper. The second paragraph describes a scene of pervasive gloom affecting the economy, rapid inflation damaging human and economic values, confidence threatened, jobs being destroyed as industries cease to be profitable. Then we read the astonishing sentence which says that since July 1975 we have begun to pull away from these dangers.
What was the Chancellor doing for the first 18 months? He was himself creating the dangers. He came to office committed to the superb policy of the social contract which was to solve all these difficulties. Why is it that the year that is just ending is described as only "the first year" of the attack on inflation? Did history begin on 1st July last year? Are we to forget that the outgoing Government had been endeavouring to tackle inflation for years before that and that there then came the catastrophic lost weekend, 18 months ago, in which this Government came to office prepared to raise every kind of expectation, prepared to challenge every aspect of the previous Government's realistic economic policy and prepared to let wage inflation rip?
The result is that the Chancellor was saying, describing his own first 12 months in office in January of this year,
If I had continued in my Budget last April the stimulus that I gave the economy in July and November 1974, I would have brought the whole economy down in ruins."—[Official Report, 29th January 1976; Vol. 904, c. 689.]
He had a good try.
The Chancellor's performance today is characteristic in another way. It is the way in which he seeks to deal with his relationships with his international creditors. My hon. Friend the Member for St. Marylebone (Mr. Baker) asked him what was the extent of drawings on the standby credit that we negotiated earlier this month. The Chancellor's handling of that matter was characteristic. When he was first asked about it by me two or three weeks ago and it was convenient for him to tell us the answer, he was proud to leap to the Dispatch Box and say "We have not had to draw on this. I hope that we shall never do so."

Mr. Healey: I did not say that.

Sir G. Howe: The impression that the right hon. Gentleman sought to give was that this was not an overdraft but a standby credit; indeed, that it was not so much an overdraft or credit as a massive vote of international confidence. What rubbish! It has turned out to be a convenient sum on which he is already drawing, and it is characteristic of the whole of his conduct of economic policy that, when he can claim a bogus pat on the back from some spokesman of international finance, he is glad enough to do so; but he is always prepared to disregard these uncomfortable facts and unwilling to tell us now what is so very important, which is how much he has had to draw of this credit.
The attitude of our international creditors has been clear throughout. If we read the reports and observations of the kind of long-term adult education course which the hapless Finance Ministers of foreign countries are having to administer to our Chancellor of the Exchequer, we find some progress being made. It would be nice to believe that the changes in wisdom, such as they are, which come over the Chancellor the Exchequer were entirely the work of the Opposition in this House. But we do not claim sole credit for that. We give some credit to those whom the Chancellor confronts around the world at the great international gatherings. The United States Secretary to the Treasury, Mr. William Simon, said at the OECD:
Lenders will become increasingly reluctant to finance current account deficits unless the borrowing nations make some fundamental changes in domestic economic policies.

Mr. Frank Hooley: Will the right hon. and learned Member accept the evidence of Mr. Simon that 5½ per cent. unemployment rate is acceptable in the industrial world?

Sir G. Howe: This Government by allowing inflation to rip ahead has found a sure-fire way to have a high and rising unemployment level for ever more.
The communiqué from the Puerto Rico conference drove home the same point. It underlined the need to accept the restoration of a better balance in public finance, as well as disciplinary measures in the fiscal area and in the field of monetary policy. What does the Chancellor have to say in the face of these observations, made to him both in private


and in public in all parts of the world? In Paris the other day he said that sterling had fallen to an unjustifiable level. After that, Mr. Parsky gave him a justifiable rebuke that no Finance Minister could say that an exchange rate was wrong. The Chancellor responded in his curmudgeonly way saying that "strictures from foreign sources were never helpful". That was a very understandable reply, especially with a record like his.
The Chancellor's whole approach to economic management is equally foolish. One has only to look at his jubilant reaction when the stand by credit became available to him. He rushed in and out of the Chamber like a schoolboy with a lollipop. The debtor who boasts about his success in enlarging his overdraft is not merely a man without a sense of responsibility, which we know the Chancellor to be, but a man who has lost his sense of shame as well. It is unthinkable that the more distinguished Socialist Chancellors of the Exchequer which this House has known—Sir Stafford Cripps, Hugh Gaitskell and even the present Home Secretary—would ever have handled this grave economic matter with the frivolity the present Chancellor has shown.
The truth is that the most curious aspect of this debate this afternoon is the form of the motion which the Government have deployed. All we are getting from the Chancellor is a modest lecture about our sour, sullen and sneering response. Last year the Chancellor came to the House on a motion to approve the White Paper—

Mr. Healey: Before the right hon. and learned Gentleman makes a muck of this one, may I remind him that the second White Paper is a consultative document and that the proposals in it are for consultation with industry. That is why we cannot ask the House to approve it today.

Sir G. Howe: That is a very curious response, because the Chancellor had no trouble in wrapping up one Ways and Means Resolution, and two Statutory Instruments in his motion today. Surely it is not beyond the wit of his procedural experts to devise a means of inviting us to approve it rather than just to take note of it.
What we notice most about the White Paper is the extent to which it represents some movement towards wisdom on the part of this Government. This movement towards wisdom means that the Government will find themselves at odds with their hon. Friends below the Gangway. We see the way in which the illusions of Socialism are crumbling away one by one. The sacred cows of Socialism are drawn up in this White Paper, in readiness for the slaughter. The tragedy is that, in so far as this White Paper has begun to be right in its diagnosis, there is no prospect of the Government carrying these new-found principles into action because too many of their hon. Friends below the Gangway still cherish illusions which deny the principles in the White Paper.
One of these principles is the plain recognisition of the fact that inflation destroys jobs; there is no longer a choice between unemployment and reflation; and real take-home pay must be reduced if unemployment is to fall. This is important because it is not what hon. Members below the Gangway believe in or vote for. That is why it is all so absurd.

Mr. John Mendelson: One of the consequences of the motion being debated in this form, because of the rules of the Select Committee of Procedure, is that the point of view of over 100 Labour Members, which is opposite to the point of view of both Front Benches, cannot be freely expressed in this House.

Sir G. Howe: What arrogance the Chancellor showed in coming to the House and talking about divisions in the Conservative Party, when his own party is historically and irretrievably divided into two separate parties. This is not a question of our coming to terms with the management of a mixed economy. They are the ones who should make moves in that direction.
This White Paper suggests that the Chancellor is getting some insight into the management of the mixed economy, but hon. Members below the Gangway do not believe in a mixed economy. One only has to read the speech of the Secretary of State for Energy last weekend, when he said that we are about to witness the collapse of capitalism and the crumbling of the mixed economy. There


are deep divisions of philosophy to be found in the Labour Party and however close the Chancellor comes to a realisation of reality he will never carry with him that half of his party which is dedicated to the overthrow and destruction of the mixed economy, rather than being prepared to join with us and the Chancellor in making it work.

Mr. Ron Thomas: The right hon. and learned Gentleman is telling us what is, in his view, the cause of unemployment. Why is it then that West Germany, which has carried out the kind of policies in which he believes, also has an unacceptable level of unemployment?

Sir G. Howe: Unemployment in West Germany is falling. In any event, if the hon. Member believes that he can make legitimate comparisons between ourselves and West Germany which are to our advantage, then he will believe anything. West Germany has a Socialist Party which has had the wisdom to cast aside all the nonsense which is believed on the Benches below the Gangway. It is a Social Democratic Party which has succeeded in achieving a standard of living which is miles ahead of that in this country. It has the resources to generate further growth and prosperity, and unemployment is falling. It has the resources to care for its unemployed which are much greater than those we have.
The extent to which there is this division in the Labour Party is demonstrated very clearly, because the Chancellor and his colleagues in the Cabinet would give their eye teeth to have a Labour Party which is anything like the Social Democratic Party of Germany. They dream at nights of getting rid of hon. Members below the Gangway—and if they do not, we do.
The first illusion that they have is about the truth that inflation destroys jobs. But there is one more uncomfortable—

Mr. John Mendelson: Will the right hon. and learned Gentleman give way?

Sir G. Howe: I am afraid not.

Mr. John Mendelson: Mr. John Mendelsonrose—

Mr. Deputy Speaker (Mr. Oscar Murton): Order. The hon. Member for Penistone (Mr. Mendelson) may have an

opportunity later of putting his point of view. He cannot do it now.

Mr. John Mendelson: Mr. John Mendelsonrose—

Sir G. Howe: I will not give way. It is not for me to organise real debates between the two points of view in the Labour Party.

Mr. John Mendelson: The right hon. and learned Gentleman is afraid to give way.

Sir G. Howe: If the hon. Gentleman believes that he will believe anything.

Mr. Deputy Speaker: Order. I must advise the hon. Member for Penistone that he may have an opportunity to speak later but not now.

Sir G. Howe: If I could organise such a debate it might be entertaining and it would certainly give the British people an insight into the rabble upon which the Government of this country depend. Such a debate between the two factions would show which of the parties was deeply divided—one faction of the Labour Party wanting to go beyond the Iron Curtain, the other struggling to remain on this side of it.

Mr. John Mendelson: On a point of order, Mr. Deputy Speaker. The right hon. and learned Gentleman is now making allegations having refused to allow an ordinary point to be made and having said that he wanted a real debate. That is unfair and disorderly conduct.

Mr. Deputy Speaker: That is not a matter of order. I explained to the hon. Gentleman that if he were fortunate in catching the eye of the Chair he would have the opportunity of putting his own point of view later. Sir Geoffrey Howe.

Mr. Haffer: Will the right hon. and learned Gentleman give way to me?

Sir G. Howe: I am afraid not. If the Labour Party wishes to conduct its own debates it may do so on another occasion, but I wish now to make my own speech.

Mr. Heffer: On a point of order, Mr. Deputy Speaker. The right hon. and learned Gentleman accused Labour Members of wanting the Iron Curtain system. That is not normal political debate. That is the sort of smear tactic


to which we are getting used from Conservative Members. I ask the right hon. and learned Gentleman to withdraw that statement.

Mr. Deputy Speaker: Order. That is not a point of order from the hon. Member for Liverpool, Walton (Mr. Heffer). It is a point of debate—

Mr. Heffer: It is not a point of debate.

Mr. Deputy Speaker: Order. The Chair will make decisions in these matters. Sir Geoffrey Howe.

Mr. Heffer: Further to the point of order—

Mr. Deputy Speaker: Order. I cannot take a further point of order because there was no point of order to begin with. Let us conduct this debate in a courteous manner. The right hon. and learned Gentleman must be allowed to make his speech.

Mr. Heffer: On a point of order, Mr. Deputy Speaker. The statement made by the right hon. and learned Gentleman was that we wanted the Iron Curtain system. That is not a debating point, it is a smear. I want the right hon. and learned Gentleman to withdraw that allegation.

Sir G. Howe: Sir G. Howerose—

Mr. Ron Thomas: Further To that point of order, Mr. Deputy Speaker—

Mr. Deputy Speaker: Order. The right hon. and learned Member for Surrey, East (Sir G. Howe) must be allowed to continue.

Mr. Maurice Macmillan: Further to that point of order, Mr. Deputy Speaker. Do I understand that the hon. Member for Liverpool, Walton (Mr. Heffer) claims to have been smeared or that a smear has been made because a political viewpoint is alleged to have been Marxist?

Mr. John Mendelson: It had nothing to do with that.

Sir G. Howe: No doubt Labour Members can explain their points of view as they think fit. However, I formed a certain impression about the primary affections of some Labour Members when

the Chamber was filled with a choral rendering of "The Red Flag" not many weeks ago.

The Chief Secretary to the Treasury (Mr. Joel Barnett): What has that got to do with it?

Sir G. Howe: The Chief Secretary may well ask. I do not pretend to be an expert in the nice distinctions between Marxism and Socialism. I am content to leave Labour Members to do that.
The Chancellor and his colleagues on the Treasury Bench have recognised in this White Paper that profits are the key to prosperity and that the downward trend in profitability must be reversed. They realise that price control is doing damage. They know that profits have fallen dangerously from 10 per cent. to 2 per cent. That may be all well and good to them. Labour Members have spent most of their lives denouncing profits and describing them as obscene and intolerable when they were at levels which are comparable to those at present. It is no wonder that the Labour Party is incapable of carrying through its conclusions in a proper way.
The Secretary of State for Prices and Consumer Protection has produced a Price Code which we are to discuss in more detail tomorrow. But how does she think that will give the sort of help which is required by British industry? Has she not noticed the extent to which Lord Watkinson—to whom the Chancellor referred earlier—has complained about it? Has she not noticed that the Price Code, which began its life as a modest 15-page document, has grown under her jurisdiction to a 37-page document with 155 clauses and about 30 new sub-clauses, and has increased in price from 26p to 75p, which is an apt tribute to it? Does she not realise that the multiplication of complexities of that kind is inimical to profits?
The White Paper claims that the failure to control public spending will destroy any prospect of economic recovery and spark off another round of inflation. That is not what half the Labour Party believes, but it is what the Chancellor is groping towards. There is, however, little chance of his producing the necessary cuts in public spending with sufficient speed to avoid the conflict in the


demand for funds which is likely to develop between private and public sectors. He cannot command the necessary credibility as someone seeking to control the size of the public sector—with all his reputation for intellectual thuggery—when one contemplates some of the legislation that he is allowing his colleagues to push through—and I leave aside nationalisation, about which he has some emotional hang-up.
There is the destruction of the grammar schools—[Interruption.] Labour Members may laugh, but I believe that parents are asking what kind of Government it can be which talks about controlling public expenditure yet which grinds Bill after Bill through the House adding enormously to public expenditure. There is the Dock Work Regulation Bill. Throughout the country at this time working parties are touring town and county halls to assemble all the officials telling councils how to get along with implementing the Community Land Act, how to begin recruiting new armies of officials and to set about borrowing without limit in order to implement the legislation. How can the Government seriously talk about controlling public expenditure with that sort of thing going on?
The latest insight into the Chancellor's thinking came a few days ago with his dawning realisation that the nation is at the end of its taxable capacity. We are facing massive burdens now which are falling principally upon the groups who are most neglected in the White Paper—and I refer to the skilled workers and middle management, upon whom industry depends. These are the talents we can least afford to lose, yet the Chancellor has converted the brain drain of the 1960s into the middle management drain of the 1970s. He is doing it with his eyes open because he created the atmosphere of hostility to those people and set out to impose taxes which would provoke "howls of anguish". He is the man who is carrying through the hangover of his truly Marxist past into taxation policies of this kind. So his conversion is sometimes only skin-deep. He is ploughing ahead by attacking benefits in kind, putting yet another burden on this group of people.
The Chancellor has also begun to develop an interest in the critical import-

ance of monetary policy. I do not suppose that Labour Members below the Gangway expected to hear their Chancellor asserting monetary policy with such purity. The idea of a Socialist Chancellor as a true monetarist among hon. Members below the Gangway is as convincing as the thought of a ventriloquist in a Trappist monastery. He does not fit.
The case for restraint in pay bargaining is overwhelming. If it came about on a spontaneous basis, not a soul in the House would quarrel with it. It is a recognition of the reality of economic conditions, an alternative to higher unemployment, essential to the control of public expenditure and part of the very difficult process of lowering inflationary expectations.
But when we have a policy which is not spontaneous, which is voluntary only in its form and is effectively dictated by agreement between trade union leaders and the Government or the Labour Party, we have to consider what our attitude should be to that policy.

Mr. Joel Barnett: It would be helpful to the House, and particularly to hon. Members opposite, in deciding whether to support the Opposition amendment if the right hon. and learned Gentleman could tell us whether the words in his amendment
recognises the need for restraint in pay bargaining
mean that he welcomes the pay deal.

Sir G. Howe: Perhaps the Chief Secretary will allow me to make my speech in my way. I was just coming to the point he raised. My next question was to be, what should our attitude be to the pay deal?
Some people on both sides of the House say that in most circumstances in a modern economy a deal of this kind is essential. Some would go as far as to say that it should be permanent, though that would not include many with ally experience of trying to operate such a policy. Other people on both sides of the House say that to have any such arrangement would be to court disaster.
I can say on behalf of us all on this side of the House that the Chancellor and the Government can hardly expect us to be falling over ourselves offering him enthusiastic congratulations on this policy


or on the one he adopted last year. The right hon. Gentleman is fond enough of talking about the collapse of the so-called Heath Government's prices and income policy. That is a gross distortion of history. The Chancellor knows that he and his colleagues did everything possible to destroy it. Worst than that, for the first 18 months in office they took the nation on a whirlwind journey into inflation.
However, whatever our reservations about that history, the Chancellor will not find us following his example by seeking to overthrown his policy. Our amendment makes that clear. The Chief Secretary is muttering. No hon. Member can point to anything we have done to try to overthrow the policy.
We recognise—how could we not?—that in circumstances as desperate as those of last summer, and even this summer, expedients of this kind may come to seem almost literally inescapable. However, I beg the House not to be deceived. An incomes policy of this kind will not cure inflation. In many respects, it will make the cure far harder because it will divert attention from policies which are the essentials.
Of course we need a policy for wages in any modern economy. They have such policies in Western Germany and the United States, and the Government have a key role in setting such a policy for public sector pay, but we must consider the difficulties, distortions and damage done by the present policy. Already there is understandable talk of relaxation and an abandonment next year. There is nothing more desirable than that we should be able to do without an incomes policy of this kind and to get away from the on-off incomes policy politics of the last 20 or 30 years.
We can see how difficult it will be for the Government to emerge next summer. Differentials will be bursting to resume their normal patterns. Two awards—the £6 and the 5 per cent. limits—will be consolidated in basic rates. There will be a nightmare legacy of resentment crying out for relief.
All these difficulties will have to be contended with and it will be extremely difficult for this or any other Government to start away from the rigidities of this

kind of policy without a returning to the inflation which is so likely to occur.
It is essential for the Government to recognise that the price so far paid for this policy is far too high. Government spending has remained too high, taxes have remained at an intolerable level, price and dividend control has been maintained with undue rigidity and a whole raft of unwanted and unnecessary legislation is being thrust through Parliament. Worst of all, the Chancellor and the Government have found themselves locked in a box, in trying to take the economic decisions which are now necessary, because of the promises they have made to achieve the present position.

Mr. Norman Atkinson: It is important that we should understand where the Conservative Party stands on this matter. In summary of the right hon. and learned Gentleman's analysis so far, can he say whether he believes that the trade unions were right or wrong in concluding a voluntary agreement with the Government?

Sir G. Howe: I would not say that they were wrong to do that. Hon. Members opposite may laugh, but this is an important point. The price paid for that agreement by the Government on behalf of the entire community has been too high. It does not represent a sensible way of considering these matters. Massive public expenditure, massive over-taxation, a legislative programme of absurd size which only damages the national economic interest, and everything else we have had to endure in the past two years have been part of that price.
Let us consider how the matter ought now to proceed. Of course restraint in pay bargaining is necessary and desirable, but it should be undertaken because people know that it is in their interest, and that will be achieved only on the basis of unshakeably firm monetary policy with money targets which are plainly fixed.
That will not be enough by itself. The kind of bargaining which has taken place between the Government and trade union leaders is not the sort for which we ought ideally to aim. The real bargain to be struck is the one between the Government in Parliament and representatives of people as a whole. We want to look for wider, more effective and more continuous ways of doing that and a much


more continuous method of explaining the connection between—[Interruption.] Hon. Members opposite may laugh, but this is a serious problem which is not soluble behind closed doors.
We need to devise methods of negotiation and discussion—between Governments, unions, all representatives of industry and wider groups—which are more closely related to this House. Bargaining behind closed doors away from this House is not the best way of arriving at sensible economic policies. It may be possible to develop the process I have outlined around the framework of the NEDC. We want to bring a wider group of people into this kind of bargaining. This needs to be accompanied by the other policies for which we are pressing.
We need a determined attack on waste and extravagance in Government, abandonment of the mammoth load of destructive legislation still going through this House, the prospect of lightening the load of taxation which oppresses so many people in this country and a relaxation of price control and other pressures on industry. These are the only ways of promoting a true revival of the private sector.
The Government's White Paper reveals a dawning understanding of some of these facts, but understanding is not enough. The Chancellor of the Exchequer may be prepared to acknowledge part of what is needed and some hon. Members below the Gangway opposite also appear to have acknowledged part of it when they were reported as saying last week that capitalism appears to be the price of Socialism. Any party that really wishes to rebuild our economy, raise living standards and develop social services must come to terms with a mixed economy.
The Labour Party is still incapable of making up its mind whether it wishes to change society and to move away from a mixed economy or whether it is prepared to get down to the business of running a mixed economy as it should be run. For that reason, a Labour Government will not for long be able to sustain a credible economic policy resulting in a relaxation of price control and recognising the need to restore profits and make cuts in public expenditure when

half their own troops do not believe in what the Government are doing.
The Labour Government are a Government placed in office by the so-called Labour movement. The only thing that is notable about that movement at present is that it does not know where it wants to move. It is time, therefore, for the Labour Government to move out of office to make way for a Government who know what needs to be done and who have the guts to do it.

Mr. Deputy Speaker: Mr. John Mendelson—

Mr. Raphael Tuck: On a point of order, Mr. Deputy Speaker. The right hon. and learned Member for Surrey, East (Sir G. Howe) not only did not put his motion where his mouth is—one might tell him where to put it—but did not even move it.

Mr. Deputy Speaker: That is not a point of order.

5.32 p.m.

Mr. John Mendelson: The right hon. and learned Member for Surrey, East (Sir G. Howe) made a number of personal attacks and smears against Labour Members. Before entering into the debate, I want to put on record that he had every opportunity to withdraw what he said. However, he refused to do so. When he was driven into a corner he said that he made his remarks because on a recent occasion a number of Labour Members were singing "The Red Flag". He showed the same ignorance about that song as so many newspaper writers have shown. It is well known that it is a song of the British Labour Party. It has nothing to do with any other Labour movement.

Mr. Heffer: It was written by an Irishman.

Mr. Mendelson: It has nothing to do with the references made by the right hon. and learned Gentleman. As a former Law Officer, he would be well advised to consider carefully the smears in which he engages against other hon. Members.
It is well known and on record that my hon. Friends have never made personal attacks against the right hon. and learned Gentleman—indeed, they have not sought


to do so. The right hon. Member for Lowestoft (Mr. Prior), who sits next to the right hon. and learned Gentleman and who speaks on labour matters, knows that no personal attacks have been made on him either. My hon. Friends and I have at all times conducted the argument on the level of economic policy. That is within the knowledge of Opposition Members. I never make references to the personal attitudes of Opposition Members, and I expect the same from the right hon. and learned Gentleman. He should be profoundly ashamed of the conduct in which he has engaged this afternoon.
This should be a real debate and should have some meaning. Everyone knows that because of present procedures, and until the Select Committee meets and can engage in a change of rule which will allow for more than one amendment to be moved and more than two points of view to be expressed, there will be a certain amount of unreality about our most important economic debates. I wanted to give expression to that view when I was trying to interrupt the right hon. and learned Gentleman the second time. He has a duty to give way because he speaks for the entire Opposition on these occasions. A Back-bench Member is not under the same obligation. The man or woman who speaks for the Government or the Opposition is under a different parliamentary obligation. That is because the country wants to know the views of the two sides of the House.
When the right hon. and learned Gentleman was saying that the responsibility of the Labour Government is quite different from that of either the West German Government or the American Government, I wanted to dissent from that point of view. There are 24 million unemployed workers, 1 million of whom are British. The other 23 million are in other capitalist countries. Unemployment has nothing to do with the Labour Government. [HON. MEMBERS: "Oh."] Unemployment is the result of the economic system under which many of the most important industrial countries live. That is not a discovery that I have made, or that members of the Labour Party have made. It is the point of view of anyone who knows anything about economics.
We are in a depression and we are only beginning to emerge from it. Why, other-

wise, should we have 8 million unemployed in the United States of America? Over the years the United States has been consistently under Conservative Administrations—namely, Republican Governments. They are Conservative Governments under a different name. They pursued various policies, but when the depression hit them they had between 8 million and 10 million unemployed. If they are emerging from the depression, they will be able to reduce that level of unemployment.
The right hon. and learned Gentleman was wrong when he said that the West German economy escaped unemployment to a large degree because at the Godesberg Conference, to which he was obviously referring, the German Social Democratic Party changed its policy and abandoned its public ownership principles. The German Social Democratic Party took that line at that conference, but that did not free the German economy from unemployment at the height of the present depression. The level of unemployment in Germany was slightly higher than in the United Kingdom. That is a simple fact. It does not matter whether one believes in one philosophy or another, it is a simple fact.
It was wrong for the right hon. and learned Gentleman to create the impression that West Germany is the great model that everyone has to follow if they want to avoid unemployment. That is not the way in which to hold a real debate. However, it is not my purpose to spend my time on the Conservative Party and its policy. That would lead to only a brief contribution.
The right hon. and learned Gentleman has not produced much policy. He made life easy for himself by complaining about my right hon. Friend the Chancellor of the Exchequer not producing a policy, but there was no policy in what he produced. If one wants to be benevolent in one's judgment, it can be said that the right hon. and learned Gentleman has a difficult task. The Opposition represent many different policies, and for him to represent them all is difficult.
On Sunday I listened to a short radio broadcast that included a contribution from the former Leader of the Opposition and ex-Prime Minister, the right hon. Member for Sidcup (Mr. Heath). It was


an interesting broadcast about economic and wages policy. The right hon. Gentleman made a number of points that are not those that the Opposition would now follow. It must be difficult for the right hon. and learned Gentleman to present a point of view today that embraces the views of the right hon. Member for Leeds, North-East (Sir K. Joseph) and the right hon. Member for Sidcup. I regard that as a genuine difficulty. I do not want to be too harsh on the right hon. and learned Gentleman because of that.
I can understand why he did not produce a policy today. May be the time will come during the election campaign in a couple of years or so when the Opposition will be forced to put their cards on the table. We shall then hear what policies they have. They can say today that they are not obliged to present all the details of their policy, but in fact we have not heard anything from them about policy. All that we heard—this is a point that I must deal with as it brings me to the Government—is that there must be cuts in public expenditure. That was the recurring theme of the right hon. and learned Gentleman's speech. We have heard that many times before, and from many other Opposition Members.
However, what makes it significant now is that the Opposition have now adopted a new line. They are now embracing the Prime Minister and the Chancellor of the Exchequer with their friendship and they are beginning to praise them, with the allegation that they expect the same policy to be followed by the Government. We have to examine that matter. That is the reason why I wanted to take part in the debate. It was not because of anything that the Opposition might put forward.
This is the most important and most serious part of the debate. I do not know who will be dealing with this aspect in reply for the Government. However, for Labour Members this will be the most important part of the debate that is now beginning. We shall have to make up our minds on our attitude on these matters.
The right hon. and learned Member for Surrey, East said that he very much welcomed the Chancellor's conversion to the view—he called it "the beginning of

wisdom"—that higher wages are a reason for further unemployment and lower payments allow for less unemployment on the same wages. That provoked my first intervention in the right hon. and learned Gentleman's speech. I believe this to be complete economic nonsense. I want to relate a little incident in the United States in order to contradict that point of view.
Some time ago, after the end of the war in Indo-China, when many of us were concerned that the Americans might find it difficult to get out of the depression, I happened to be in the United States. As I represent a steel-making constituency, I asked to be taken by some American friends to a steel-consuming factory. In Massachusetts I was taken to the shipbuilding yard of General Dynamics. I spent a day there discussing the works with a director. He took me around. They were just in the process of retooling. Far from being in a difficult situation, they had just received a new order for 300 tankers—they were not to be very large tankers; only of medium size—and the yard would be busy working on them for three years.
As hon. Members will know, in a shipbuilding yard one normally does not see many men. However, as they were retooling, I met a good many men and talked to them about wages. A director told me later that the company had been laying off several thousand men, but had taken on 2,500 again and would be taking on another 2,000, which would mean that it would end up with 800 more than it originally had. He said, "This will interest you. On re-employing labour to raise the strengths we offered every man an increase of 65 cents per hour of our own free will." That was the managing director of that shipbuilding works.
Of course, I was quite astonished. However, that was the modern entrepreneurial attitude in the United States. That is the modern attitude which has helped America to get out of the crisis. There is by no means unanimity among entrepreneurs and among owners of factories that it is helpful to create more unemployment to pay the lowest possible wages. What the right hon. and learned Gentleman has been saying this afternoon is economic nonsense. In this instance, what the Americans have done has helped their economy. The additional wages that these men were paid were


circulated through the American economy. The standard of living of those work people was increased. They had more goods to buy. It helped America to get out of the depression. It is my conviction that we could do the same. It is nonsense to say that the more we cut down the better we shall get out of our depression. That is my first point.
That brings me to what must be implied in the consultative document that my right hon. Friend the Secretary of State for Prices and Consumer Protection has put to us and to organisations in this country for discussion. The underlying assumption there is beginning to show through in the Chancellor's speeches. We had an element of that today. I do not want to be too rigid about that, because we have not had any proposals yet from the Government, and I do not want to assume merely from newspaper articles what the Government will ultimately propose. However, if we were to cut down in public expenditure—not this year, as the Chancellor made clear, but for next year-1 do not believe that we would then get a direct transfer of the resources so freed from the public service and that the capital would be put into productive investment in productive industry. There is no evidence at all that such an automatic transfer would take place. There is no evidence in past economic experience that such a direct transfer ever takes place. Many other things have to happen before the encouragement of investment takes place.
It is arguable that, generally, in a country such as the United Kingdom, we may reach a level at which we might have to say that we have not got the resources to transfer, for instance, and to build up our service industries beyond a certain limit. I suppose that it is possible in theory to argue that while a country such as the United States, with its very large capital resources, could go on and on and could build up its service industries to a very high degree, in Britain the limit would be lower—but that would be for another reason and purpose. It would not imply the automatic transfer of those resources into productive investment.
Therefore, merely on the argument about building up our productive industries I would certainly not give my approval, by vote or in any other way, to

a cut in the public services. I am not now discussing the demand for a cut in public services that comes from the Opposition. To them it has become almost a ritual, a constant reiteration of the demand, although many Opposition Members do not even give reasons why they want this. There is a certain unpopularity in local government expenditure and certain other types of expenditure. However, I am not now talking about that. I am talking about a much more serious idea, which comes through in the consultative document and in some of the Chancellor's speeches.
Let it be argued that there is now a need for special measures to increase investment—which I believe to be completely correct. That, however, has nothing whatever to do with the cutting down of education and of teachers, for instance, or with cutting down the National Health Service, because that would imply the non-availability of real resources. I do not believe that at present we in this country are suffering from a non-availability of real resources. That does not mean that we may not reach that stage. If a terrific boom were to develop over the next 18 months, a position could be reached at which a shortage of real resources might occur. We are nowhere near it.
The Chancellor was rather general in his talk about unemployment figures this afternoon. He said that by the end of 1979 he wants us to reach the low level of 3 per cent. I do not regard 3 per cent. as a low level at all. However, what is to happen between now and the end of 1979? I am interested to know the Treasury's estimate for the end of this year. I do not want to have a figure that leads me only to the end of 1979. I regard the unemployment position as very unsatisfactory. I hope that as a result of the increase in the level of production we shall be able to reduce very greatly the level of unemployment. At present there is no sign of a shortage of real resources.

Mr. Crouch: When the hon. Gentleman talks about real resources, is he suggesting to the Government that the real resources should be the release of more Government money into industry to create more investment, or is he agreeing, perhaps with the Government and with


paragraphs 32–36 of the White Paper, that the release of real resources can be met by taking some of the shackles off industry by relieving the provisions of the Price Code in some way, as the Government intend? Is he against that, or does he want to see the Government using taxpayers' money as Government expenditure going into industry? There is a difference.

Mr. Mendelson: I am not referring at the moment to the very limited proposal contained in the consultative document which deals only with a level of 2·2 per cent., as the hon. Gentleman knows. If the Government are convinced, and if the facts are convincing, that there is a need for a certain limited increase in the general amount of profitability of our productive firms, then I shall not stand in the way of trusting the judgment of the Government, in agreement with the major industries after investigation, that such a limited increase should take place.
There may be general reasons, and general grounds, why that would be desirable while maintaining price controls in order to make wages more reasonable and fair. Only a limited release is proposed. I am talking about a policy, which has not yet been announced, in regard to cuts in public expenditure for 1977 which is beginning to be so much a feature of speeches and articles and which has been so warmly welcomed by the right hon. and learned Member for Surrey, East.
I am declaring my opposition to such a policy, and to the grounds on which such a policy might be advanced, because I do not believe that the grounds so far advanced would be acceptable. On the contrary, I believe that the resources are available to use for investment. Where there could be difficulty is that, although the capital is available, people are not prepared to use it. There was some evidence of that during the last debate on unemployment when I made the same point.
Two days later I received a letter from a staff member of one of the Big Four banks inviting me to meet some of the staff because I had been critical of the banks and said they had capital which was not being used for productive investment. I was told that I had been abso-

lutely right. The staff members did not argue with what I had said but asked what they were to do. They said that, while they were sitting on that capital, industry was not coming to them and they could not force the money upon them. That was the representative point of view of one of the four major national clearing banks in response to something I had said during the last debate on unemployment when I tried to get the House to vote on an amendment which, unfortunately, proved impossible under the existing rules at the time.
It is not just an individual opinion but a fact, which is accepted in many circles, that the capital and the real resources are available. However, one danger is that a number of things might immediately follow, and one of them could be an increase in consumption. Just as an increase in consumption followed an increase in employment and investment in the United States, which America could cope with because of the tremendous home base of her industries, so there could be a considerable increase in consumption in this country. That could result in a twin danger to our balance of payments and to some of our home industries, some of which are weak and would be pushed to the wall, and some of which would never be allowed to get off the ground. There could be a vast increase in imports which would immediately knock our balance of payments sideways. We have to guard against that.
That is why, for more than two years, some of us have consistently demanded temporary limited import controls. It is precisely at the moment when the upturn comes, and when consumption begins to grow considerably, that it is absolutely necessary to have a period of temporary import controls. It is serious that the Chancellor of Exchequer is not prepared to make any statements on that subject. If he has entered into international commitments which make that impossible, then he ought to tell the country. I am quite sure that many of us would not approve of such commitments. If he has not made any such commitments, but if there are difficulties, then we ought to do what France, and other countries have sometimes done, and that is to recognise the need to take certain measures for a limited period which are essential for the recovery of the British economy.
It is all very well for the right hon. and learned Member for Surrey, East to say that other countries are prosperous and are doing this, that and the other, while not being prepared to support taking any risk at all, or doing anything which is likely to be courageous in our interests. After all, the history of this country is that certain economic activities have been undertaken by British governments when other people wished they had not done so. Yet, after a period, people accustomed themselves to it and said that if it were necessary, and as long as we would take the controls off again later, they had better accept them. That is bound to happen in this case, too.
The Government would be able to do that in the knowledge that there would be approval by the House of Commons and that there would be a safeguard against the balance of payments seriously running into the red again. Temporary import controls would also be a safeguard for those industries which are weak and which have to be built up, as well as for some new ones which would have a period to retool and invest. That is an internative policy.
On the other hand, we must examine the policy that what is now most needed is the cutting down in public expenditure. To say that we have been having too much of a party in recent years, and that many essential things, however desirable, will have to wait, without any guarantee that such a policy will lead to desirable economic results, is a policy about which we have not been persuaded on the evidence so far provided. That is not the same as arguing that both the private and public sectors must be prosperous.
The right hon. and learned Member for Surrey, East was talking his usual propaganda nonsense when he tried to suggest that there is something new in members of the Government arguing that there ought to be a successful private sector, or that there was something new in their belief in a mixed economy. The belief in the mixed economy has always been Labour policy. There has never been any doubt in my mind about that since I joined the Labour Party. How could one join a party led by Herbert Morrison, or Clement Attlee, without knowing that he had joined a party which believed in a mixed economy? All my life we have been dedicated to a

mixed economy. What we want is to have a prosperous, growing public sector and a prosperous private sector. As the private sector is larger than the publicly owned sector, there is plenty of time for growth in the public sector in our lifetime and beyond. That is the policy of the present Government and there is no conflict in support of that policy.
But there may be difficulty if we pursue policies which are not courageous enough, which are based upon propositions which are unproven and where the balance is not even between those of the lower income groups, who always make sacrifices, and those of the higher income groups who rarely make sacrifices. That is where there may be disagreement. However, if there is fairness and good sense, and if we can be convinced that it is a policy for which they have a mandate, then support for the Government will be good and strong.
We hear rumours of wild cuts in public expenditure based on the unproven assumption that that is what is needed to build up industrial investment. There is no agreement on that score, and I would not support it if it were put forward. On the other hand, there may be a need for the Government to see that investment goes in the right direction and also to influence industry to invest in the right direction. There is also a need to build up a national investment board and even for legislation to compel a certain amount of investment if people refuse to invest.
All these are valuable policies and should be considered. If that happens and if social policies are maintained in the interests of the many people who have a right to be heard and considered, the Government will have nothing to fear, and indeed can look forward with confidence to the next General Election. We have now reached the crossroads and beyond this stage everything is premature. The debate has started. Let it now continue.

6.2 p.m.

Mr. Julian Amery: There has been a certain air of unreality about this debate so far. The Chancellor of the Exchequer announced a far-reaching conversion to views which we on the Conservative Benches have long held, but his remarks


were disguised in a series of recriminations about what the Conservative Administration did several years ago. I thought that my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) got much the better of the argument in exposing the inconsistencies of the Chancellor's present position with the earlier publicly-declared position to which he has until recently adhered.
An uninformed observer might have thought that the hon. Member for Penistone (Mr. Mendelson) was directing his venom against my right hon. and learned Friend the Member for Surrey, East, but a close study of the hon. Gentleman's speech will make it clear that, although it was disguised as an attack on Conservative policies, it was in reality an attack on his own Government Front Bench. If I may use a phrase with which I know the hon. Gentleman will be familiar, he was externalising the internal factor.
I wonder how far we can afford to have these internal divisions at present. We have an alarmingly high rate of unemployment, and we have an inflation rate that is double—indeed, sometimes treble—the rate of inflation of our principal competitors. We are told that it may come down to single figures—not this year, but possibly by the end of next year. Furthermore, we have a mountain of debt and we have experienced a dramatic decline in individual living standards and in the social wage in the last 10 years. This has brought us down from being top of the European league, except for Sweden, to being second from bottom, with only Italy below us—well below countries that we either liberated or defeated in the last war.
I wonder whether we could not find more genuine common ground on which to base our approach to the present crisis. I have always supported a prices and incomes policy. I thought that we were wrong to oppose the Labour Government over "In Place of Strife." I support my right hon. Friend the Member for Sidcup (Mr. Heath) in his prices and incomes policy. Although I do not necessarily agree with every detail of what the Labour Government did last year, and are doing this year, on the wages front, I welcome their approach. But it is clear that price controls and incomes controls

will have to be relaxed next year compared with this year. It is equally clear that in themselves those controls are not enough. The sterling crisis proves this clearly.
It is nonsense for the Chancellor of the Exchequer to say that the pound is under-valued. Money is a means of exchange, but it is also a store of value. It is as a store of value that its worth is determined. I fear that there have been, and still may be, fairly sound reasons for the lack of confidence in sterling. If the Chancellor had come a little cleaner and told us a little bit more in the White Paper, and certainly if he were a little more informative, I should not now find it necessary to give my own balance sheet of the reasons why I think sterling is in its present situation. As it is, I shall try.
The public sector borrowing requirement has been officially given as £12 billion. Some estimates seem to indicate that it may prove to be a little less than that sum, but certainly no foreign banker or foreign holder of sterling would discount that figure.
What are the means of financing it? There is the balance of the 1975 IMF loan, and perhaps there is £500 million of that left. Certainly the Minister will know that figure, even if I do not. Then there are National Savings.
If they are as high as last year—and they were very high—that could give a figure of £400 million. Assuming an 8 per cent. to 10 per cent. increase in money supply on M3, one would get a figure of between £3,200 million and £4,000 million out of that consideration. Let us assume a sale of gilts of between £3,000 million and £3,500 million. That is not as high as last year's £4,400 million, but last year's figure was a record year, when interest rates were very high. If one tots up these figures, one finds a shortfall of between £3,600 million and £4,900 million between the requirement and the means of financing it. No doubt there are ways in which money can be moved from official reserves to help to bridge the gap. Furthermore, it may be that the borrowing requirement will be a little less than the one that is officially estimated. It may be that the sale of gilts will be a little higher, although if that happens it is the corporate sector that will suffer.
How are the Government to bridge the gap? The Chancellor has excluded increases in taxation, indirect as well as direct. Therefore, the only alternative, apart from borrowing, appears to be cuts in public expenditure. Until the other day there was no sign that the Government were ready to undertake any such cuts. The conclusion drawn by foreign holders of sterling was that the Government would soon resort to the printing press. Hence came the panic.
The Government will be better informed than I am on this matter, but I am told that three major holders of sterling decided to withdraw, at considerable loss to themselves. It was absurd for the Chancellor to say that we were given the standby as a mark of confidence in the management of our economy. We were given the standby because the Group of Ten recognised that, unless they did something to help us, there would have been a major international financial crisis. The standby has stopped the panic withdrawals. Since the rate is being underwritten, it makes it possible for an orderly withdrawal to take place. But that in itself does not restore confidence. It is only by public expenditure cuts, and only if the Government can prove that they can meet their borrowing requirement without printing fresh money and fuelling inflation again, that confidence will be restored.
This is common ground between the two Front Benches. The Government are committed to making cuts by the terms of the standby. The hon. Member for Penis-tone said that we did not know what had been agreed, but I am sure that he knows in his heart that the terms under which the standby was secured include repayment within a period of six months, if necessary by seeking a loan from the IMF. But this implies acceptance of strings imposed by the IMF, which will be severe unless we mend our ways. The time limit is a period of six months, but after a period of three months it will become clear whether we are in a position to repay the standby. If we are to support the rate out of the standby—as the Chancellor has admitted we are doing —it seems to me extremely unlikely that we shall be able to avoid a going to the IMF.
Obviously the Government's room for manœuvre is limited. Indeed, they have

only one choice open to them. If they intend to cut public expenditure, they must announce those cuts before the House rises for the Summer Recess. Otherwise the cuts will be imposed on them by the end of the year by the IMF. They are rather in the position of a man who is told by his doctor to cut down his drink or be certified and put in a home for alcoholics.
It is not for me to advise the Prime Minister how to lead his party or to keep it united. He must decide whether it is more blessed to lead or to be pushed. But I have no doubt myself which is the more honourable attitude to adopt.
This brings us to a further question. How deep must the cuts go? That is a question which should interest hon. Gentlemen below the Gangway as much as other hon. Members. There is talk about cuts amounting to £1 billion. Is £1 billion enough? When Rome was burning Nero tried to console himself with melodies. Is £1 billion the right melody? Can we afford to fiddle at this stage? I am a little doubtful whether £1 billion is enough, under whatever conditions the cuts are imposed. The timetable is clearly relevant. When are the cuts to be made? If they are deferred until the next financial year their impact on confidence will be much less than if they were imposed before, although I fully accept that it is becoming increasingly difficult to make any substantial cuts in this financial year as time goes by.
The question is, what should the figure be? I do not think that there is an arithmetical answer. It is not a question of bridging the exact gap between the borrowing requirement and the means of financing it. There are two variable factors—the confidence of foreign holders of sterling and the confidence and morale of enterprise at home.
If the Government are determined to carry on with their present programme regardless of the opinion of Parliament and the country, I say to them, and to hon. Gentlemen sitting below the Gangway on the Government side, that these cuts will have to be much deeper. If the Government are determined to go ahead with the nationalisation of the aircraft and shiprepairing industries, and the ports and docks legislation, if they are going to throw more meat to hon.


Gentlemen below the Gangway and pursue what we regard as an antiquated, anachronistic and anti-social policies, the effect on confidence is bound to be bad. The International Monetary Fund will not interfere in our internal affairs. It will finance Socialism—even red-blooded Socialist policy—but at a price. The price will be a great deal higher.
If, on the other hand, the Prime Minister dropped the controversial items for his programme and sought a consensus of this House and the nation, I think that he would find that foreign confidence would return much more quickly and that tensions at home would be rapidly reduced. Even the trade union movement would not be all that sorry to see these changes made.
I do not underrate the difficulties. I said at the beginning of my remarks how serious our predicament was in terms of unemployment, underinvestment, over-manning, inflation and the general decline in our living standards. However, unity, if achieved, could restore the situation rapidly. There have been a dozen such instances in our history from the seventeenth to the twentieth centuries. I cite the case of what happened in the Second World War, when a change in leadership set a completely different tone. Within a few weeks of Winston Churchill taking over from Neville Chamberlain the morale in the country became quite different. Later we saw the speed with which the Germans picked up though we had flattened their economy in the war. We saw the same rapid recovery in France after 1958. We all know from our own experience—whether of a regiment, ship, company, college or other institution—that a change of leadership can quickly bring about a complete change in morale and in the output, enterprise and effort of the organisations involved.
The Prime Minister has the advantage of being a new leader. I should like to think that his predecessor gave way to him to afford him the opportunity to strike a new note. The Prime Minister has a historic opportunity. What we want to know is this: is he big enough to take it?

6.15 p.m.

Mr. Richard Wainwright: The House was bound to be a

little suspicious that something was being concealed when a White Paper on inflation of such staggering complacency was commended to the House by the Chancellor, acting in the rôle of an exuberant fatstock auctioneer who, for once, had two or three sound beasts in his pen and wanted to convince the crowd that all his stock were of that calibre.
In fact, such complacency may be dangerous. It certainly no longer fools the foreigners. There used to be a myth that some currency dealers abroad could be influenced by a "bit of flannel" from the Dispatch Box in this House. History long ago showed that that was not so. There is a great danger that busy people in this country, who do not have the time to read all the fine print, may be given an illusory idea that inflation is on the way out and that the Government have successfully done the trick. It is a great pity that those achievements, which are to the Government's credit, have been somewhat tainted by the way in which the Government have been less than frank about the remaining difficulties.
The White Paper "The Attack on Inflation" is far less than frank in stating how far the Government's target of single-digit inflation by the end of this year has slipped behind. We are given no clear chart showing exactly what is the position now. My own view is that we shall perhaps, with luck—I hope that this happens—get down to single-digit inflation towards the end of 1977, but I fear that it is virtually inevitable that we shall be back to an inflation rate of 11 per cent. or 12 per cent. in the early part of 1978, because the Government are pro-ceding on a hand-to-mouth basis with their anti-inflation tactics.
The White Paper, again, gives no reasonable analysis of how far the Government's modest successes are due to the sinister pressures of unemployment rather than to any strategic skill of the Government.
This afternoon the Chancellor failed to acknowledge the fact that his policy, agreed with the TUC, is for a 4½ per cent. maximum rather than a maximum in the area of 3 per cent., which he stipulated explicitly in his Budget.
There was no reference to the way in which this deal with the TUC was to be


enforced. We must hope that everybody honours their bond, but we must realise that vast numbers of workers in this country are entirely honourable in feeling that they are not in the least bound by any pact that was entered into by the TUC. More than anything by way of reservation, I want to stress the fact that this is very much a hand-to-mouth document. We must be grateful that it is likely to tide the country over for another nine or 10 months, but the White Paper contains no hint of preparation of strategy for the years to come, and especially no hint as to how the Government will tackle the much more difficult attack on inflation when we are out of the recession, when demand is booming and all the customary pressures return. Indeed, it might be said, on a rather purist analysis, that the plan agreed with the TUC will make re-entry to boom conditions all the more difficult and will buy temporary relief at the expense of storing up trouble in a year or two.
This is grave cause for doubt about a White Paper which otherwise contains some welcome material. The whole strategy will be nothing like complete unless, later in this debate, after a disappointing start by the Chancellor, the Government say something about how they are preparing the longer-term strategy.
For instance, what about the next version, mark 2, of the social contract, which is already becoming a little overdue? The Government are preparing their boasts of how they are rapidly coming to the end of achieving the promises of the first version of the social contract. To keep up this alliance with the TUC—good luck to them, if it can be maintained at a more reasonable price—they will have to come forward with a new social contract.
It is my private belief that one factor which led to the recent change of Prime Minister was the fact that the former Prime Minister could not bring himself to the point of having to rewrite the social contract in today's conditions—a social contract promising a lower standard of living and vast reductions of spending on public amenities or alleged amenities, and one which could not honestly promise any startling reduction in unemployment.
Indeed, giving the Government credit for a good deal of intelligence, I should think that one reason why they appear to be so complacent about the future trend of policy when this year's White Paper has run its course is that they know that unemployment will not come down dramatically and that, unfortunately, they will be able to rely in 1977–78—and, I fear, in 1978–79—on the sinister pressure of unemployment to help them to keep wage demands in check. That is a negative and, in my view, an unnecessary weapon to have to use when there are more sophisticated weapons which a courageous and imaginative Government should see.

Mr. Frank Tomney: Such as?

Mr. Wainwright: Such as the incomes policy, to which I shall turn and on which I shall try to have some constructive things to say.
It is the view of the Liberal Bench that in this year there should have been some modest moves towards flexibility of policy. The idea of a completely uniform, relentless maximum, regardless of circumstances—particularly a maximum that pays very little attention to pension anomalies and other such difficulties—is too much to expect the nation to carry for a second year running, when the atmosphere of emergency has been somewhat dissipated.

Mr. Tomney: Politicians in general and economists in particular have not yet cottoned on to the fact that this country is currently over-populated in regard to both prime resources and manufactured resources, both national and international. It may be the order of the day that policies will have to be adapted not only to contain but to provide for a large reservoir of unemployment.

Mr. Wainwright: The House would not thank me if I allowed myself to be diverted for more than a moment to deal with that intervention, which did not bear on my theme, but I wholly repudiate the idea that this country has a surplus of population. There may be romantics who wish that history had been written in a different way, but I am content to believe that, with appropriate guidance from the Government, we can usefully


employ all those able-bodied people in our population and not fall victim to the romantic or despairing idea that we have an insoluble population problem.
To return to my point, there should have been some flexibility in this year's policy. One could forgive it in the first year of emergency policy to achieve the suppression of 30 per cent. wage demands but to say for a second year running that companies shall not buy past service pensions for shop floor workers who have devoted most of their lives to the service of the company is carrying repression too far. It is, of course, a singularly anti-labour, not to say anti-Socialist, policy, but it is a fact that the pay deal—I am astonished that the TUC agreed to this—prohibits companies from going any further in their pension schemes than is necessary to secure contracting out under the new legislation.
That means that companies are forbidden to buy pensions in the way they always used to do, if they were enlightened, to cover the past service of employees. At the very time when we want to achieve pension deals for people on the shop floor equivalent to those which staff employees have had for many years, it seems iniquitous that the buying of past service pensions by employers should be caught by this year's policy.
Similarly, we believe that there should have been greater flexibility in matching the exception that has always been made for employees who have a fixed, written, codified increments system. It is a standing injustice that employees who might have expected an acknowledgement of their growing seniority in a firm but who do not have it codified are not allowed to receive such an acknowledgement. They are simply landed, just like the office boy or the newly-joined dispatch clerk, with the 4½ per cent. limit.
It could have been possible for a reasonable maximum to be allowed where it could be proved that an employee had achieved an increased degree of seniority in the firm, or was carrying an appropriate extra responsibility. The gradual growth of two nations—incremental staff and non-incremental staff—could have been prevented.
The development that the Liberal Party would particularly like to have seen incorporated towards the end of

the White Paper was some indication of the way in which the Government intend, this year to develop the tactic of which we thoroughly approve, namely, harnessing the tax system to the service of pay restraint. We acknowledge wholeheartedly that the Chancellor's device of bringing possible tax reliefs, which the House is now asked to approve, into the negotiations with the trade unions is a most commendable move. The way in which it was done may have offended some parliamentary susceptibilities and might be improved, but we should have liked to see a reference in the White Paper to the possibility not merely of continuing but of expending it.
One thinks, for instance, of the possibilities of adjusting the social security contribution of both employer and employee according to a firm's willingness to conform to certain pay restraint norms, so that a company or a group of employees would be technically free to exceed a pay norm but only at the price of a considerable penalty in higher social security contributions. There is no inkling of that sort of development in the White Paper.

Mr. David Madel: There is a big snag in that argument, is there not? It is not the first time that we have heard it. If a group of employees have a democratic vote to exceed a pay norm, and 53 per cent. vote to exceed it and 47 per cent. vote against exceeding it, is it not unfair on the 47 per cent. if all of them have to pay the excess? In any case, how does one tell who voted which way in a secret ballot?

Mr. Wainwright: I am grateful for that intervention, because the question of harnessing the tax and social security system to anti-inflation policy is important, and all the snags should be examined. I regularly concede that, from a purist point of view, there are always difficulties in applying penalties collectively. But there are two answers to that. First, rough justice is much better than no justice at all. Secondly, we hoped that the Government would refine their use of the tax weapon by coming down this year to a much more intimate level than dealing simply with the TUC.
This year, the bargain on behalf of the whole vast work force of this country


has been struck with one institution—the TUC. We should like to see the tax discrimination brought down to the level of the form. I agree with the hon. Member that that is still of collective importance, but collective on a far smaller scale, involving far less rough justice than dealing simply with the TUC. I doubt whether we could ever get to that refinement of justice in which every employee can have his tax status varied accordingly to his willingness to conform to a norm.
As has already been said in the debate, we are dealing with these matters, and the Government are dealing with them, against the sombre backcloth that if we do not inspire confidence in this country among our creditors, the IMF and other outside bodies will intervene
It is because we on the Liberal Bench think that, in spite of all its shortcomings, and to some extent its shortsightedness, the White Paper "The Attack on Inflation" copes better than any other imminent Government could have coped with this year's problems, that we shall support the Government in the Lobby.
Finally, I am obliged to turn to the Conservative Opposition's amendment. The Conservative Opposition—we do not from this Bench grumble about it, because we are exploring with others the channels for putting it right—enjoy a monopoly, by precedent, in having their amendment called in debates such as this. There is no purpose, therefore, in other groups and parties in the House putting down amendments which they know perfectly well will not be selected for a debate or for a vote.
But, since that monopoly exists, it seems to us—I do not know whether we have the support of other disfranchised minorities in the House in this matter—that on this occasion the Conservative Opposition have not really used their monopoly position for any constructive purpose Their amendment is such a flimsy affair that we certainly shall not feel inclined to take part in any Division upon it, nor can I feel that the IMF, or any other of our creditors, will have its confidence in Britain bolstered by reading that the only other imminently alternative Government in this country merely
recognises the need for restraint in pay bargaining".

I cannot believe that that form of words, if it were to be carried tomorrow night—and it will not be carried with our support—would make the IMF feel that Britain had at last regained its heart of true oak and discovered the secret of anti-inflation policy.

6.33 p.m.

Mr. Raphael Tuck: Despite any differences between my right hon. Friend the Chancellor of the Exchequer and myself —and there are some differences: for example, I believe in selective import controls, as does my hon. Friend the Member for Penistone (Mr. Mendelson), and I do not believe that the Chancellor does—I feel that he has done a tremendous job this time in cooperating with the trade unions and getting their consent to the policy he has put forward. It is a great achievement and a great step forward, and it is one which I do not believe any Conservative Government could have achieved. That is why I fear greatly that any future Conservative Government, if there is one, may indulge in a life-and-death struggle with the trade unions, because the Conservative Party believes in confrontation rather than co-operation.

Mr. Prior: Nonsense.

Mr. Tuck: The right hon. Gentleman says "Nonsense", but it has been proved by past events, particularly the events of early 1974. No one can get away from that.
The charge has been levelled against my right hon. Friend the Chancellor of the Exchequer that he was pandering to the trade unions by getting their consent. I feel that those who level that charge do not see the whole situation in its historical perspective. It must be remembered that the Labour Party arose originally as the political wing of the trade unions. I want to see that link between the trade unions and the Labour Party developed and strengthened for the future.
I shall, therefore, put forward a suggestion which will, no doubt, appear to many hon. Members as heterodox. I am rather nervous about introducing it, because many of my hon. Friends, and hon. Members on the Opposition Benches, may laugh it to scorn, but I


remind them that the heterodoxies of today become the orthodoxies of tomorrow. I ask them at any rate to accept that I hold these views sincerely and honestly. Like the right hon. Member for Brighton, Pavilion (Mr. Amery), I believe in an incomes policy, but I do not believe that it should be a compulsory one. I believe that it must be voluntary. In that sense I do not agree with the right hon. Gentleman that "In Place of Strife" was right. I feel that it was wrong, in that we cannot move masses of people around like pawns on a chess board.

Mr. Prior: It has nothing to do with it.

Mr. Tuck: The right hon. Gentleman is making sedentary grunts. It certainly has something to do with it.

Mr. Prior: The White Paper "In Place of Strife" had nothing to do with an incomes policy. It was about the reform of industrial relations.

Mr. Tuck: It may have been about the reform of industrial relations, but it certainly had a lot to do with incomes policy.
The situation has been reach in which the Government must not issue directives to the trade unions on an incomes policy which the trade unions must accept. The Government are not, thank heaven, in the happy or unhappy position of the EEC Commission, which issues directives to its members which they have to observe. No Government in this country can do that any longer. They must carefully consider the views of the trade unions before reaching their decisions.
My next point is addressed to Mr. Jack Jones, whom I admire immensely, but who distressed me when he hinted strongly recently that next year we cannot have a 4½ per cent. or any agreed increase in wages, but must return to collective bargaining. Just as the Labour Party or the Labour Government must not issue directives to the unions, the unions must not claim increases in wages and salaries that are entirely inimical to the economy. They must have regard to the economy and to the people of this country.
Collective bargaining, in my view, therefore, must give way to collective plan-

ning, that is, consultation and cooperation between the Labour Government and the trade unions, and the decisions reached must be borne of that consultation and co-operation.
I therefore have the temerity to suggest to my right hon. Friend the Chancellor of the Exchequer—I hope my hon. Friend the Minister will convey this to him—that next time, instead of putting forward his policy and then asking the trade unions if they agree with it, he will consult with the trade unions first of all and formulate with their agreement, consent and co-operation a policy which is agreed between them, and that he will then put it before the country.
If there is that consultation and that co-operation we are more than half way towards victory. If this becomes the norm in the future, we may find that we are the envy of all the nations in the civilised world.

6.40 p.m.

Mr. Peter Tapsell: I do not know why the hon. Member for Watford (Mr. Tuck) expressed anxiety about the heterodoxy of the proposals he was about to put before the House. His concluding words exactly described the policy which the Chancellor and the Government whom the hon. Gentleman supports have recently adopted and practised.
One interesting and valuable aspect of the debate, and of the Government motion and the Opposition amendment, has been to reveal a greater degree of common ground between the two sides of the House on economic affairs and on how our problems should be handled than has been evident for many years past.
As my right hon. Friend the Member for Brighton, Pavilion (Mr. Amery) wittily pointed out, the two Front Bench spokesmen in their opening speeches did their best to conceal that common ground by indulging in the usual party political knockabout which is inseparable from our affairs, particularly in economic debates, but if we cut through that we find that both Front Benches are agreed that the policies that particularly need to be pursued are a tight control of the money supply, a strict control of public expenditure—although there are differences between us on this in timing


and emphasis—and restraint of wages. That degree of agreement is a valuable advance.
One of the hardships which the country has had to endure for the past 10 years or more is that there has been so little agreement on economic affairs between the two great parties. The Opposition of the day have always opposed incomes policy and the Government of the day have always said that they would not introduce an incomes policy; right up to the moment when they announced it.
The Chancellor was being a little ingenuous when he claimed credit for consistently seeking to pursue sensible economic policies, because he left out of account the period from March 1974 until July 1975 when he was pursuing policies wholly different from those described in the White Paper "The Attack on Inflation" which we are debating today. The Labour Government, under the pressure of events, particularly international events, have shifted their ground on economic affairs. Since the Prime Minister took office there has, at least in terms of verbiage, been a major shift in economic thinking which has brought the Government close to the policies which the Conservative Party has been advocating from these Benches ever since the February 1974 election. If only the Government would implement the thinking of the White Paper and the recent speeches made by the Prime Minister, and his answers from the Dispatch Box at Question Time, there would be a real hope of seeing a turn for the better in our national affairs.
I was heartened to hear the excellent speech made by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe). It revealed the economic divisions between the two sections of the Labour Party, but it also underlined the degree of common ground between the two Front Benches. I was particularly interested in that section of my right hon. and learned Friend's speech in which he dealt with incomes policy and looked to the National Economic Development Council as the body which the next Conservative Government would use to make an incomes policy viable. I welcome that, because it is in the tradition of the Conservative Party to work through that body, and would give us a chance to get away from overdue reliance on

the CBI and the TUC. If, as my right hon. and learned Friend suggested, we can use the NEDC as the vehicle for working towards a nationally agreed incomes policy, we can ensure that the entire nation is involved in the discussion and not merely those two powerful, influential but not wholly representative bodies.
One of the other great advances of recent years is the almost unanimous agreement that money supply and its proper control holds the key to these problems. The proper control of the money supply and a drastic reduction in public expenditure—more drastic and immediate than the Government yet envisage—are of fundamental importance. Yet I have in the past differed from some of my right hon. and hon. Friends in thinking an undue reliance on the money supply dangerous. That is still my view. Since 1970 I have been expressing the view that an incomes policy is an essential element in the overall package, and that we must use all the instruments of Government—fiscal, monetary and an incomes policy—if we are to have a healthy economy and a happy country.
Those people who wish to rely solely on control of the money supply and do not wish to have an incomes policy are entitled to say that it could stop inflation. I do not doubt that if we pursued a sufficiently rigorous control of the money supply we would bring inflation virtually to a standstill, and that would be a very desirable result to achieve, but the price we should have to pay for that would be very high. The price in terms of the level of unemployment and the level of bankruptcies in industry, the City and agriculture would be an intolerable price.
Those of us in the House who have been through several international and economic crises know that whatever our colleagues may say in the academic circumstances of opposition, when they are in Government the pressures start to build up. There are the pressures of lost by-elections, the pressures of constituency officers saying that they are unhappy with what is being done, and the pressures of meeting in one's surgeries constituents, once devoted supporters, who are extremely unhappy because their livelihoods are threatened. No matter how many of our colleagues have been in


favour of a particular policy, when it comes to the crunch they have had second thoughts. Governments take that very much into account. Governments of all political complexions change course and involve themselves in what their opponents term "U-turns".

Mr. Lawson: My hon. Friend is right to talk about the price of certain policies. Those of us who are sceptical about an incomes policy as it is generally understood are against it not mainly on purist grounds but because we feel that there is a heavy price to be paid for it, and the game may not be worth the candle. Does my hon. Friend argue that the Government are paying for this incomes policy a price that should not be paid?

Mr. Tapsell: My right hon. and learned Friend the Member for Surrey, East made the same point in his speech, and I agree with my hon. Friend the Member for Blaby (Mr. Lawson). The price which the Government have had to pay for their remarkable settlement with the trade unions has been high, in many respects too high, but we must also ask ourselves what price we have to pay if we do not have an incomes policy. The two must be set against each other.
The price that one must pay if one does not have a generally acceptable incomes policy is twofold. Either we have a confrontation, as we had in January and February 1974, or runaway wage inflation as we had from March 1974 to July 1975. Both those prices are too high. The task of Government in handling the economy and in political management is to steer a middle way between paying too excessive a price for achieving a viable wages policy or paying too excessive a price for not having one at all. There must be a compromise between the two.

Mr. Nick Budgen: Does my hon. Friend the Member for Horncastle (Mr. Tapsell) agree that the price can be divided into two? There is the short-term price in terms of policies agreed with the TUC, and the longer-term price which involves a sharpening of the movement towards a corporate State. Does he agree that some people are reluctantly prepared to accept that second price? Is it possible that

my hon. Friend regards the movement towards a corporate State as a good thing? Does he want central economic issues to be taken away from the House to be decided by something like a vast televised NEDC?

Mr. Tapsell: I am not in favour of the corporate State if by that my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) used those words emotively to mean a Fascist-type corporate State.
That is one of the reasons why I welcomed the suggestion by my right hon. and learned Friend the Member for Surrey, East that we should work through the NEDC rather than just have discussions with the CBI and the TUC. There are certain dangers in doing that and then announcing to the House that something has been agreed and that the tax arrangements in the Budget are all dependent upon it. I did not regard that action by the Government as unconstitutional. It was fully justified to achieve the result it did, but I prefer the NEDC approach.
Equally, the words "corporate State" —in inverted commas—tend to be bandied about too easily just as people throw the words "Fascist" and "Communist" about too freely. Few of us really believe that this country is in danger of becoming a Mussolini-type corporate State. I agreed with some remarks by my right hon. Friend the Member for Sidcup (Mr. Heath) the other day when he said that the words "corporate State" were bandied about too freely without true significance. There is a danger to be guarded against, but the country faces grave economic peril and we should not lightly disregard what could be productive methods of behaviour simply because of a fear of the words "corporate State".
This country does not exist in a vacuum. In the course of my commercial life I have travelled extensively round the world and almost wherever I go I notice that Governments, central banks and those interested in trade unions and commerical life are discussing incomes policy in different forms. They put varying degrees of emphasis on it. I recently visited two countries, one smaller and one bigger than this country, but both exceedingly efficient. I found that both Singapore and Japan pursue incomes policies and attach great importance to


them. Both countries have the closest consultations on these matters with their trade union movements.
When I was in Tokyo I was proudly told by a senior Japanese Government official that their "spring offensive"—as they call it, because they make one settlement a year—had resulted in an average wage increase of 9·05 per cent. for the next 12 months. I found it interesting that they calculated that to the second figure after the decimal. Their incomes policy is more sophisticated than ours because within that average settlement there are enormous variations. Some workers get over 20 per cent. and some under 5 per cent. The Japanese cannot be criticised for lack of entrepreneurial zest, lack of economic efficiency or lack of competitiveness in world markets. Yet incomes policy is a major instrument of their economic achievement, and majority opinion in Japan is that they would not be as efficient or competitive economically if they did not have an incomes policy. One could say the same of many other countries. Curiously, too, the dispute about incomes policy in this country is mainly confined to the House of Commons, journalists and academic circles. Public opinion polls indicate overwhelming support for an incomes policy. Those who circulate in the City and industry find that the majority of people who earn their living in the competitive market place believe that an incomes policy is necessary.
The first question asked by a potential foreign investor in sterling concerns the present strike record in Britain and the rate of wage increases for the next 12 months. It is certain that if the Government had not achieved their recent settlement with the TUC we would not have obtained the recent standby credit. If the incomes policy broke down another run on sterling would immediately follow. Britain's present position now leaves Government with no alternative but to have an incomes policy.
One of the weaknesses in the argument of the pure monetarists—those who believe that an efficient control of the money supply makes an incomes policy irrelevant—is that it overlooks the monopoly position of certain of the great trade unions. Who can doubt that if the miners, the power workers and the dockers wished to challenge a Govern-

ment who were conducting economic affairs solely on the basis of control of the money supply they could bring the country to its knees? As we know from experience, a combination of the miners, power workers and dockers striking simultaneously could bring the country to a standstill. What is then happening to M1, M2, M3 or M500 will make not the slightest difference to their bargaining power in such a situation.
When we are dealing with the realities and practicalities of life we must have an agreement, preferably voluntary, with all workers and the trade unions. I go further and say that it is a brave politician who would think that no future Government will ever again require a statutory wage freeze. On the contrary, I believe that it will never again be possible anywhere in the Western world efficiently to run an industrialised parliamentary democracy without an incomes policy.

7.0 p.m.

Mr. J. W. Rooker: If the last remarks of the hon. Member for Horncastle (Mr. Tapsell) have done nothing else, they have certainly shown how stupid was the intervention of the right hon. Member for Lowestoft (Mr. Prior) a few minutes ago, when he said that industrial relations had nothing to do with an incomes policy. The two are completely intertwined, as the hon. Gentleman has just pointed out. That is why, if they ever reach government again, the Conservatives will never successfully work out a policy that will have the acquiescence of the trade union movement.
I am struck by the tone of this debate compared with the one on last year's White Paper. The Chamber is not very full. I concede that the Labour Benches are more nearly empty than the Opposition Benches. That probably shows that the policy is in the bag. It has been decided outside the House. Many of us supported the proposals of my right hon. Friend the Chancellor in the Budget speech that that should happen.
In putting the White Paper before the House, the Government are borrowing one more year. They will not be able to do it again. The provisions of the Remuneration, Charges and Grants Act do not allow a further Order to be brought before the House on the matter of a White Paper and an agreement with


the TUC. Therefore, we shall have to consider fresh legislation, if it comes to that point, in a year's time.
I want to refer to two remarks made when the pay policy was introduced, one of them in the document sent, at great expense, to every householder in the country to explain the policy. It said that:
a continuation of the present rates of inflation would—
greatly increase unemployment".
That was last September. On 20th August the former Prime Minster, my right hon. Friend the Member for Huyton (Sir H. Wilson), had said in a television broadcast that the £6 policy was an essential weapon against the growing menace of unemployment, and an essential expression of national self-discipline required to get us on the road to full employment. He said that that was why the next year was crucial. It was the year in which we say "Stop".
No one has mentioned the fact that unemployment today is almost exactly 50 per cent. higher that it was this time last year, when the policy was introduced. That means that more than 400,000 more people are unemployed. What will happen if the plan of the past 12 months is continued for the next 12 months, and we see a continuing increase in unemployment, or a hovering around the 1.3 million mark, this time next year? Whatever the Government propose, the vast army of unemployed and their families—who by then will be very much long-term unemployed—the trade unions and even the Parliamentary Labour Party, or a majority of it, will not be able to support the Government on a test of confidence, especially if they want to make it on such spurious policies as the child benefits Bill. That will be the position unless there are some changes in the unemployment level in the next 12 months. It is within the Government's capacity and resources to do something about it.
The present pay policy is in the bag, with the TUC's support and, I accept, substantial support in the country at large for some form of incomes policy. I admit the substantial drop in levels of inflation this year and am sure that the policy will be a success in that regard. Therefore, we should now be starting to think about

the third year, or the first year of the next policy, whatever it will be. It is because of its failure to think about this that I object to the White Paper so much. The hon. Member for Colne Valley (Mr. Wainwright) said that there was no indication in it of what might happen in the future.
A few weeks ago even Jack Jones said that planning should start fairly soon and that there should be discussions about what is to happen after August 1977. I am the first to admit that if he said that we should probably be remiss to argue with him. He is an extremly powerful man. But he comes out with some ideas which I hope the Government will not adopt. One example of a few weeks ago was not his talk about a return to free collective bargaining but his suggestion that there should be a reduction in the working week to 35 hours. Anyone who has been in industry, on either side of the shop floor or in management, knows that a claim for a reduction in the working week on its own is fraudulent. It would not increase leisure hours, and would not help to reduce unemployment. It would only increase the overtime worked.
The overtime now worked in manufacturing industry is almost equivalent to the total number of hours that we have lost through people in manufacturing industry being unemployed. Therefore, I should be much happier if the Government started to think about a restriction, on the hours of overtime worked. We are one of the few countries in the Western industrial world that do not have some restriction on adult male overtime. We are one of only two countries in the Common Market in that position. Nearly all our economic competitors have some restriction. That is the sort of policy I am pursuing—not just a decrease in the nominal hours of the working week.
That policy, coupled with the introduction of flexibility in the retirement age for men, so that some men below the age of 65 can cease work—men who have worked in foundries and heavy engineering all their lives and are too ill to continue working—would do far more to reduce unemployment than any claim to reduce the working week to 35 hours. I should like the Government to start to move in that direction


as soon as possible, and not leave it until the usual panic stories, around Whitsun and Easter, that we must satisfy the international bankers and others from whom we have borrowed money.
The third matter on which the Government should start is one that is not my party's policy, but in the two and a half years I have been here we have done many things which are not exactly Labour Party policy. I refer to discussions on the national minimum wage. The pigeon-holes of the Department of Employment are stuffed with reports about that idea. I was pleased when my right hon. Friend the Secretary of State for Employment, at the Press conference outside the House last week, when he introduced the White Paper, according to reports
objected less to a floor than to a ceiling on wages".
If he can be persuaded to pursue that argument, he will naturally come to the conclusion that a national minimum wage is extremely desirable, more so than a return to free collective bargaining, which others might describe as the law of the jungle, under which the weak go to the wall.
We spent many hours in the House last year putting the Employment Protection Bill on the statute book. Much of it is now in force, but a substantial part of it—Schedule 11, which is almost an Act in itself—shows no sign of being implemented. It affects terms and conditions of employment and lays down rules under which certain sections of the working population can succeed in a claim based on the relativity of their terms and conditions to those of other workers in similar industries, and so on. It strengthens the fair wages resolution and the existing legislation on the subject. There is no doubt that it could lead to substantial increases in pay, but those increases would necessarily be ordered, because they would have to be bought out before a tribunal if they were disputed. The legislation is already on the statute book, so there can be no arguments about interference with free collective bargaining. I think that employers, given time, would be able to co-operate.
The fifth area to which I wish to refer concerns the sledge-hammer effect of the

policy from which we are now moving away, in that we are moving into complete rigidity of pay scales in ordinary manufacturing industry. Probably over the last two years there have been more attempts at restructuring the wage system in industry than there have been in the previous 10 years, because of the mad rush as a result of the implementation of the Equal Pay Act. Many firms left action till the last minute. Many firms did not wish to establish equal pay on its own. They saw disadvantages in it and wanted to take the opportunity, quite rightly, completely to restructure their factory wage system with the consent of the work force and of the trade unions, among them many of the firms of which I know in my constituency in Birmingham. While they have been able to implement the equal pay aspects in relation to women they have been unable to proceed with the rest of their restructuring policy, which would make sense of equal pay and avoid causing disruption in the factories.
I can think of nothing more ludicrous than pumping hundreds of millions of pounds of taxpayers' money into British Leyland, as we are doing at the present time, when we are to be left at the end of the day with exactly the same basic industrial relations problems within British Leyland as those which caused so much of the trouble in the company as it exists at present
In the first set of British Leyland accounts since the undertaking was nationalised last year there is a reference to reforms that have been introduced, but other important reforms, such as the amalgamation of bargaining units is held up by the operation of the Government's incomes policy. We have heard from the hon. Gentlemen on the Opposition Benches about getting one agreement for everybody, such as that which operates in Japan. We cannot even get complete agreement in our larget manufacturing company owned by the State, into which we are committed to pour hundreds of millions of pounds to achieve the regeneration of that industry. At the end of the day we shall have put in all the assembly lines and press shops and have retrained and moved many employees but we are still to be left with the same situation of hundreds of different


bargaining units—something like 250—resulting in leapfrogging claims, questions, and all the irrational things that happen on both sides, with walk-outs and Press publicity about the British motor car industry. The policy advocated in this White Paper will not change that one iota.
Taking those five points together, now is the time to start talking and laying down the ground rules so that we do not have a wage explosion which, as an hon. Member said, could be of atomic proportions. If we take all these five areas together there could be a planned and orderly return to a different system of wage bargaining. I make no bones about the fact that there are alternatives to free colllective bargaining, which means the law of the jungle and the weakest go to the wall. In this country at present 68 per cent. of the adult male working population actually receive below-average gross earnings. We must couple with that the fact that in the next four years—this is a point that the Chancellor rode over, as he has done before —the working people in this country will increase by 600,000 net. That fact frightens me enough to be ready to try any solution to avoid a free market in wages, as we would try to avoid a completely free market in investment or goods.
That would not work. If the working population is to increase by 600,000 in the next four years and the Chancellor wants to bring unemployment down to about 700,000, it means that he must find over 1 million jobs in four years. In the present policy there is no indication of any planning to eliminate that problem. I am prepared to pay a high political price to see the level of unemployment reduced.

Mr. J. M. Craigen (Glasgow, Mary-hill): Does my hon. Friend think that part of the price might involve the direction of labour as well as the direction of investment?

Mr. Rooker: On the one hand, there is enough surplus labour all over the country at present, whether in the region that my hon. Friend represents or the so-called "prosperous" area, the West Midlands, part of which I represent; but the need even to contemplate that is a

long way off, because unemployment all over the country is extremely high. There are pockets in which unemployment is very low, even in Scotland and particularly Aberdeen, so I do not consider that such a policy need be contemplated. We have not done enough to redirect industry. I am all for pushing that first.
We have put many carrots before the workers to encourage them to move round the country. Since January, we have paid grants of £1,000 to workers in development areas who have never owned a house but wish to purchase one in another area where there is work for them. But I understand that up to two months ago only 65 workers had yet taken advantage of that.
My last point is that my own union opposes the policy of the TUC, and long may trade unions be free to oppose the TUC. I must make a mini "commercial" here, because of the success of the ASTMS in breaching the £6 pay policy. Last year, during the passage of the Remuneration Charges and Grants Bill, I proposed an amendment to that legislation to provide that the 1946 fair wages resolution of the House of Commons would still stand and that claims under it would not be subject to the £6 limit.
The present Leader of the House accepted that there would be no limitation on the effect of the fair wages resolution. In the last 12 months my union has been the only one successfully to pursue claims under it and has achieved remarkable success, for example, an increase of £13·50 for foremen. It did so under the previous pay policy in 1973 also, at the same company. There is therefore some credit to the union for the fact that it opposed the system in principle and wished to have a system of total free collective bargaining. But my union showed more sense than some others in using some, I will not say loopholes, but clauses and gateways to increase and advance the terms and conditions of its members.
Axiomatic to what I have said, I would not be prepared to couple with these five proposals a free-for-all for everyone else. That does not mean to say that anyone badly affected by these proposals should not get some increase, for that would not be acceptable to the trade unions and my constituents.
That brings me to my last point, on productivity bargaining, much discredited in the late 1960s. Like many others, since I could not get round the limitation of the system operating in 1967–68 I was involved in productivity bargaining of a kind that was a little spurious and left much to be desired, though it kept industrial peace. Nevertheless, by late 1969, when the Prices and Incomes Board reported for a second time on productivity agreements, there had been established rather wider acceptance of the guidelines that it put forward. There was a wish to get away from the term "productivity agreement" and to speak of "efficiency agreement" or something of the kind.
Clearly, we have to have such a system, because workers in companies need to receive increases in pay as their output and efficiency increase. That is absolutely vital, but we do not want a Government body, like the Pay Board, policing that area. I am still for going back and latching on to the present policy, drawing the organised trade union movement of the country into the central management of the economy, including wages and investment.
I would put fairly and squarely on the trade union movement, perhaps including the CBI, the duty of policing jointly the efficiency of productivity agreements, so as to get some kind of consent. I accept that after a legislative battle we have had a policy that seems to have worked, but it cannot continue to work. Therefore, given a year of breathing space, which the Government bought from the trade unions and from the Government side of the House, now is the time —this month or next month—to start working on arrangements and proposals for stage 3 or year 3, or stage 1 of what is to come after—for clearly something must follow what we are now proposing.

Mr. Deputy Speaker (Sir Myer Galpern): I am sure that hon. Members will welcome the information that I am about to give them. There are still 16 other Members who wish to take part in the debate before the winding-up speech starts at 9.30 p.m. I leave it to hon. Members whether they are going to co-operate one way or the other.

7.20 p.m.

Mr. Douglas Crawford: After the two opening

speeches, I was prompted to ask myself "When, oh when, will this House come to its economic senses?" It was with a growing feeling of despair that I listened to the two Front Bench spokesmen.
However, the contributions from the right hon. Member for Brighton, Pavilion (Mr. Amery), the hon. Member for Horncastle (Mr. Tapsell) and the hon. Member for Colne Valley (Mr. Wainwright), among others, injected some sanity into what was an insane beginning to this debate. The two Front Bench spokesmen skirted round the principal issue without getting to its guts. The guts of the issue are that a nation or, in this case, a State comprising several nations, cannot go on living on tick or in hock for ever. Deficit financing is all right for a time, but it cannot go on for all time.
As Mr. Micawber said—I make no apology for repeating it yet again from the Scottish National Party Bench—"Income, 20s., expenditure, 20s. 6d.—result, misery." It is from this, in my opinion that the United Kingdom has been suffering. The United Kingdom ship of state is awash with borrowed money, and the pumps—its ability to service its debts—are increasingly less able to cope. The United Kingdom ship of state still has too many imperial pretentions. It parades too many folies de grandeur.
Turning the analogy, perhaps the United Kingdom is displaying increasingly a death wish of Cleopatra.
Give me my robe, put on my crown
I have immortal longings in me.
Let us see what is at the root of price increases or, to use the more brutal and more honest word, inflation. Inflation can be caused by bad macro-economic management or by a basic structural fault in a country's economy, or both. Alas, it would appear that the trouble with the United Kingdom is that it is caused by basic structural faults in the United Kingdom economy. This structural fault is at the root of the present inflation.
Basically, the United Kingdom is consuming more than it is producing. The public sector borrowing requirement of £12,000 million is only part of the reason. There is a private sector borrowing requirement which is just as serious a problem.
We see some of the tips of the iceberg. Are they causes or effects, or both? Some of the tips are evident. First are our high interest rates. They must, ipso facto, contribute to higher prices. If we compare this country's interest rate with Norway's 5 per cent., Holland's 5 per cent., Belgium's 7 per cent., Denmark's 8½ per cent., Sweden's 6 per cent., and Austria's 4 per cent., we can see what industry in this country is up against.
A further cause and/or effect is the falling pound. Let us not delude ourselves that it is recovering. It is still far too low. Although it may make exports cheaper, it makes imports dearer, and all too often imports have to be bought before exports can be sold. What is more, if the pound drops much faster, the United Kingdom will soon be giving away its exports. The solution, in the centralised and solidified United Kingdom context, is hard, brutish and short. It is freedom to raise prices and to restore wage rises below the rate at which those prices increase. It will mean a drop in consumption and further cuts in public expenditure, and it could lead to very serious social unrest.
In all this, we in Scotland—and I am sure that I speak for Plaid Cymru Members when I say "and in Wales"—wish no part, and here are our Scottish reasons.
According to the regional survey of the Department of Employment, the "Quarterly Cost of Living Report", Scotland's cost of living is 9·4 per cent. dearer than that of the other areas of the United Kingdom. Income per capita in England, according to the Department's Family Expenditure Survey, is 9·4 per cent. higher than in Scotland. Many food prices in Scotland are higher. According to the Price Commission's Report "Food Prices in the Outlying Areas", food prices in the North of Scotland showed the greatest disparity from typcial United Kingdom prices, to the extent of 7·3 per cent. above the average. It is against this background that my party wants nothing to do with cutting down on price increases.
The idiocy of legislating for the United Kingdom as a whole as one economic entity is clear now as never before. The

United Kingdom is made up of several economies, and the Scottish economy is one of them. Scotland is different, and there is a need to decentralise not more control over Scotland's own economic affairs but total control over them.

Mr. Robert Hughes: Will the hon. Gentleman concede that in England there is the same disparity between incomes and prices?

Mr. Crawford: Certainly there is a disparity between the various regions of England—

Mr. Robert Hughes: And Scotland.

Mr. Crawford: And Scotland. But one is either comparing Scotland with England or the regions of Scotland with those of England, and there is no region in England that suffers as much, for example, as the region represented by my hon. Friend the Member for Western Isles (Mr. Stewart).
I used to think that the decentralisation of economic activity could be achieved within the Westminster framework. Now I know that this is not so. Scotland's independent control over the Scottish economy demands Scottish independence and, until such time, any move towards substantially increasing prices in Scotland will be resisted by the SNP.
It is not Scotland's fault, and it is none of Scotland's business, that the rest of the United Kingdom is living beyond its means and that it cannot afford to buy the food and raw materials that it needs. Scotland is not living beyond her means.
Perhaps the nation of Adam Smith—and what is wrong with Adam Smith, and is not it time to return to some old-fashioned financial virtues?—could teach the nation of John Maynard Keynes. Let us get away from the intellectual economics of Oxford BAs and Hampstead PhDs. Let us get back to real basic economics and balance our books.

Mr. Robert Hughes: The hon. Gentleman appears to be making a very powerful case. However, two study groups set up by the SNP could come to no conclusions as hard and fast as those that the hon. Gentleman is reaching.

Mr. Crawford: I am not sure what are the reports to which the hon. Gentleman is alluding—

Mr. Robert Hughes: Mr. Robert Hughesrose—

Mr. Crawford: No. I have given way to the hon. Gentleman several times already.
There is no reason why a thrifty Scotland should suffer for the economic excesses of a spendthrift England. My party is opposed to opening the floodgates of price increases. It is my belief that a self-governing Scotland will have an economy able to sustain itself without overheating, without serious balance of payments deficits, without United Kingdom-style inflation, and without high unemployment. I remind the House that we have higher unemployment in certain parts of Scotland than anywhere in England.
The sooner that Scotland is away from the rest of the chronically unbalanced United Kingdom economy, the better—the more stable will be our economy and the more stable will be our price structure, with it.

7.27 p.m.

Mr. Giles Shaw: The first White Paper is entitled "The Second Year", and no one will disagree that it will be a very long time before we can write "finis" to the attack on inflation. However, the scale of our domestic problem owes much to the Government's mishandling of events during their first full year of office, as my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) stressed. The abandonment of restraint in that first period led to the biggest wage bonanza of all time. "Footloose and fancy free" must be the description of it.
When the Government now call, in the light of their recent and successful initiative with the TUC, for a new response from management in view of what they have achieved in the second phase of wage restraint, let them not forget that restraints on prices, profits and dividends have been imposed by legal sanction for four consecutive years and that to that should be added, in fairness, the previous year of voluntary price control by the top 200 companies to the limit of 5 per cent which the CBI voluntarily imposed.
So it is this historic erosion of industry's financial base combined with the traumatic effect of the high level of

inflation, which is now shortly to enter its third consecutive year of being in double figures, which has brought our industrial performance so low.
I believe that one of the most serious consequences of these events has been the real sapping of the will of management to manage its own affairs. If the Chancellor seeks industry's response to the TUC arrangement—and I pay full tribute to their success in that achievement, because it was a genuine one—that response must lie primarily with management, and the rôle of management must be understood clearly. That rôle is to assess and take risks leading to sustained and profitable returns; to take and implement decisions affecting the future of profitable employment: and in view of this responsibility to be adequately rewarded for that contribution.
There is no doubt that the will and the willingness of British management to execute its role has been eroded seriously in recent years by the taxation policies of this Government. It is against that background that the Government's proposals must be judged.
The second year, albeit one vital year late, poses the vital challenge for management because the Government's main objective is the recovery of industrial profitability. Paragraph 32 of the White Paper says:
The downward trend in profitability must be reversed.
It is high time that we saw a statement like that in a White Paper from this Government.
How do the modifications of the Price Code stand up to examination? I do not share the outright opposition of the President of the CBI to the proposed modification of the Price Code. I recognise that there may be some political mileage to be gained from opposing the Government on this, but I understand the tightrope which the Secretary of State for Prices and Consumer Protection must walk to get the acceptance by the TUC of the 4½ per cent. wage deal. But I beg leave to doubt the success of amendments to the Code as far as an increase in investment and jobs is concerned.
The Chancellor quoted with pride the comments of the German Chancellor, and the applause which reverberated throughout Puerto Rico when he told Ministers


of his achievements in wage negotiations. But when I, with other members of a Select Committee, visited Germany recently and discussed such matters as central banking with the Bundesbank, one of their directors commented that the United Kingdom had established a new economic law—namely that the export advantages of a declining currency were being overtaken by the increased costs of imported raw materials and food to the extent where the United Kingdom was importing inflation. The Secretary of State for Prices and Consumer Protection notified us of a slippage in the inflation target because of the importation of high-priced raw materials. This is the difficulty which we are facing.
Certainly with the hardening of commodity prices and the steep rise in world food prices, I doubt whether we can look forward to much relief from the upward price spiral, and at the same time the weakness of our currency must cause great concern. I wonder what Chancellor Schmidt would have thought if the Secretary of State for Prices had told him that it was Government policy to raise the permitted return on capital employed from 2·2 per cent. to 3 per cent. I cannot believe that he would regard that as anything but totally inadequate.
Investment is undoubtedly vital, but it is not the rôle of management to create jobs. Its rôle is the creation and exploitation of products and services which are capable of competing successfully both at home and abroad. Investment is the taking of risks to promote profits on which jobs ultimately. depend. We welcome the importance attached in the White Paper to the essential rôle of profit. But there must be generous room for doubt about whether the changes in the Price Code will go far enough.
I welcome the change in investment allowance from 20 per cent. to 35 per cent. But in many industries—the food industry for one—the real problem faced today is not new capital for investment but finding working capital to maintain people in jobs. In the food industry the import of raw materials spells escalating costs, in view of the declining pound. This has brought most severe constraints on working capital. Some modification should be made to allow companies some help in trying to maintain working capital.
I note the modifications to the code on saving fuel and energy. This is an important initiative and the Minister should consider extending it to other imported raw materials. In this hot weather it might even be a good idea to have an allowance for saving water to encourage efficiency. The reduction of consumption of water might be a means of getting industry to contribute to the saving of that vital commodity.
As far as recategorisation is concerned, I do not believe that any fewer companies are now omitted than in 1973. In fact we are back very nearly to 1973 levels and the Government owe it to industry to try to bring some relief to a number of companies which have been brought within Category 3 of the Prices Code.
I am disappointed that the three-month rule is not being relaxed, although there is recognition that allowances for sudden costs do exist. On a matter of detail, what is the position of metrication under paragraph 62 of the Prices Code, especially where unit prices for fixed weight food products are concerned?
The code remains a very large instrument of Government, and the Minister of State must recognise that there is very little in the code as proposed which means that the load will be less on management. What is in it for management? The cosmetic aspect of these schemes, the Price Code, and the Price Check Scheme, which is about to end, worry me. One can conceal some of the truth some of the time and use various methods to conceal from the consumer some of the effects of inflation for some of the time. But the people—all the people—must be told the truth. Our problem is the generation of wealth, not its taxation and distribution. Our problem is the investment in new technology, not the preservation of obsolete technologies. Our problem is the release of skilled energies by men and management, and to see that when risks are taken, real rewards are given. Our problem is the recognition that a nation in debt is a nation in decay.
Our solution is that if we honestly lead British industry then we have in the private sector productive resources which can sustain our survival as they have done so often in the past.

7.39 p.m.

Mr. John Garrett: Any view on the White Paper "The Attack on Inflation. The Second Year" must take account of the extent to which it attempts a solution to two broad categories of problems—the unacceptably high level of unemployment and inflation; and the fundamental and long-established weakness in the British economy and the economic injustices in our society. In tackling the first of these we must establish the basis for a systematic attempt to solve the second.
It seems important to take a view of the White Paper from the standpoint of general industrial strategy. The White Paper concentrates on the short-term problem—that of inflation—and suggests that the next stage will reduce it to around 7 per cent. at the end of next year, at which point we shall be inflating no faster than our major competitors and the unemployment levels will be on the way down. On all the evidence available the target for inflation seems to me to be broadly feasible, but I have severe misgivings about the forecast for unemployment. I believe that the Government have severely underestimated the prospect for imports, principally of manufactured goods. We are all aware in the early stages of recovery that there is a rapid build-up in the import of raw materials and components as stocks are rebuilt, but the unique feature of the British economy is the ever-increasing flood of imports of manufactured goods, which reaches a higher level in each succeeding boom.
One feature of the recession of the past two years has been the extent of factory closures, which have permanently reduced our manufacturing capacity, capacity which will be needed in the coming expansion. One has only to consider the capacity which has been closed down in the television, electronics, car and motor cycle, machine tool and the clothing and footwear industries.
I can take an example from the footwear industry in Norwich. Factory closures have taken place throughout the recession, one following another. The last one was last week when a further 250 jobs were lost. So we have a shrunken footwear industry with over 40 per cent. of the home market taken by imports. I fear that when consumer spending revives and increases the size of the home market,

the home industry will be too weak to respond. The industry has shrunk under the impact of imports and the combination of indifference and the nineteenth century laissez-faire attitudes still firmly held by the Department of Trade.
I believe that it was in the essential national interest that import controls should have been placed on footwear while the industry constructed a plan for its survival and growth. Nevertheless, the Government disagreed and the industry declined still further. Worse still, the Department of Trade handles complaints of unfair competition with dilatoriness, allows countries which export shoes to us to impose high tariffs on our shoes, and cannot even bring itself to plan imports to this country from the COMECON countries. The footwear industry is a good example of our industrial decline caused by uncontrolled and unplanned imports, and presided over by the Department of Trade, to which planning is anathema. Thousands of British workers will stay jobless unless the Government take a positive attitude to imports, as every other Government in deep economic trouble seems able to do.
In the longer term the Government have staked everything upon a massive increase in exports and investment. No doubt we are at last in the early stages of an export-led boom, but if this boom is based solely on a grossly undervalued pound it will not last very long. The goods we should be exporting should be those which we sell because of their technical superiority and delivery performance, not their price. As the Director-General of the National Economic Development Office said recently, in certain sectors of engineering we could easily become the world's largest exporters of obsolescent goods. It is pursuing a will-of-the-wisp to place our hopes for continued export improvement on the fact that traders in currency are unable to put a realistic value of sterling.
Making room for investment by reducing public expenditure and private consumption is fine in theory but valid in practice only if the investment takes place in the economy where there is insufficient capacity. It is clearly true that investment in plant and machinery is low and has been for many years in comparison with our main competitors. But this has been as much a demand problem


as a supply problem. Even when, 10 years ago, profits in industry were far higher then they are now, British industry grossly under-invested. This was the start of the present and continuing import boom. It would be an outstanding folly if the cuts in public expenditure included funds required by the National Enterprise Board to invest in manufacturing industry, because that is the only vehicle by which the Government can ensure that investment actually takes place where it is needed.
The problems of British industry run far wider than a simple shortage of investment. They include a very low level of management competence—partly a matter of status, partly of training and partly of inferior prospects. They include a neglect of marketing—which is the main function of industrial management, all others being subsidiary. They include massive class hostilities between management and worker. They include inadequate resources devoted to design, and a misdirected national research effort. The Government have taken steps through stock relief, investment allowances and relaxation of the Price Code to make available funds for investment. A world upturn is providing the opportunities for selling the products of that investment.
We are left with an act of faith that the investment will actually take place—though historical precedents are not encouraging. If it does not take place we have only an embryo planning agreement system, and an already fully burdened NEB to fall back on as machinery for monitoring and promoting investment. We shall pay the penalty of having failed in the past two years to construct any national planning system which can be used to relate any industrial objectives to corporate and sectoral plans.
All we have for dealing with the longer term and structural weaknesses of our industry are the NEDO studies of 39 industrial sectors. I have no doubt that these studies will analyse what NEDO has been analysing for the past decade—the bottlenecks in production and the obstacles to growth. I might add that I came into Parliament not to "de-bottleneck" British industry, but to take over the bottle. These studies may be more rigorous and have more urgency than those in the past, but they are not

accompanied by any overall plan or strategy for industrial development, and therefore they provide no way of ordering priorities, taking direct action against weaknesses or building up our strengths.
I understand that the NEDO procedure is called "bottom-up" planning, since "top-down" planning is held to be interventionist, dirigiste and therefore offensive to British industrialists. When I practised corporate planning it always seemed to me that the sole use of either approach was wrong and that both had to proceed together. Planning by sector had to be fitted into a top level general strategy which established overall aims and objectives and the general direction of the enterprise. It is in my view not enough to demonstrate to an industry that its performance is inadequate in productivity, manning, exports or import substitution, or design and technology and then to say "But we have arranged for plenty of funds to be available for investment. Now put yourself right."
British working people who are sacrificing their living standards and their standards of community provision in order to make these funds available have the right to expect a more positive and certainly a more Socialist attitude from the Government than that. We must expand the NEDO studies into a national economic planning system with powers of direction of investment if all our incentives to invest fail in practice.
But the construction of such a system will take at least the rest of the decade. In the meantime the prospective growth of exports cannot compensate for the prospective growth of imports, a reduction in unemployment to, say, 750,000, an increase in living standards and the maintenance of today's modest levels of public services. This situation might change once we are a substantial exporter of oil, as we may be when the very favourable prospects for new discoveries in the North Sea and the Western Approaches are exploited. But until that day comes the only way in which we can protect working people from the penury which market forces will exact will be to plan industrial development and plan our imports of manufactured consumer goods. Why should planning so unnerve a Labour Government?

7.47 p.m.

Mr. Michael Neubert: This afternoon the Chancellor reminded me very much of Muhammad Ali. The boxer has just come out of hospital after a contest in the martial arts, in which he managed to land only two punches on his opponent's head in 45 minutes. He was asked what deep philosophical thoughts he had when he was sat on heavily by his opponent for a long period. He replied that he was just waiting his time to collect his $6 million. Likewise the Chancellor, battered by his bankers and pummelled by the left wing of the Labour Party, seems to have no answer to inflation except to await the next drawing on his $5 billion standby facility. His policy, if he had one today, seemed largely to consist of monitoring monetary aggregates and accelerating overheated bottlenecks.
I was greatly disappointed by the Chancellor's lack of emphasis on reducing costs in the White Paper. One of the prime purposes of these proposals is to stimulate investment, in the interest of greater numbers of jobs. It is now accepted that improved profits are a necessary precondition of that investment, but improved profits, come both from higher prices—and the proposals in the Price Code will allow slightly more dealistic prices, which will encourage some investors—and from reduced costs, and it is with great misgiving that I noticed so little emphasis directed to that aspect, particularly as it affects overmanning, which term is not used in the White Paper.
Apart from three oblique references to productivity in the White Paper, there has been virtually no reference to one of the main barriers to capital investment. Unless manning levels are reduced, there will be little incentive for companies to invest in new capital equipment.
One of the problems over the years has been that we do not get investment simply by holding out the prospect of improved prices. Companies will be encouraged to invest if they believe that that the installation of labour-saving equipment will realise its full potential in reducing manning levels, and there is little in the White Paper to encourage that belief among companies.
It was only when provoked by the hon. Member for Bristol, North-West (Mr. Thomas), who suggested that invest-

ment should be the scapegoat, that the Chancellor discussed this subject at all—and he simply substituted another scapegoat, namely management.
The problem of overmanning is endemic, and must be removed. It is as important a factor as underpricing in poor profits. Overmanning can be found in many parts of industry. The "Think-Thank" review of the car manufacturing industry produced the categoric and uncomfortable conclusion that the British car worker, given the same power at his elbow and similar working conditions, produced only half as much as his Continental counterpart.
Small wonder that imports accounted for 36·9 per cent. of our car market last month. This illustration can be multiplied 10,000 times over throughout British industry. Unless there is a radical change of heart, there will be no improvement on this side of the equation.
I visited a car manufacturing plant last summer and was dismayed to see a man whose job was to stand between two machines cutting and moulding metal panels and direct them from one machine to the other. Such was the din and the isolation from his workmates that this man might just as well have been struck deaf and dumb for eight hours at a stretch. Technical ingenuity could easily automate that man's job, but would unions be prepared to accept the consequent reduction in manpower? If not, there would be little chance of the necessary expenditure being undertaken by the company concerned.
This example indicates what needs to be done, and it is sad that the Government should pay so little attention to this matter in the White Paper.
One can partly understand the Government's attitude. They are concerned with the grave problem of unemployment, but there is a much more serious problem of under-employment—men in jobs which do not exist.
Unlike the hon. Member for Birmingham, Perry Barr (Mr. Rooker), I welcome recent proposals for work sharing and a shorter working week, with the corollary, of which the hon. Member was so sceptical, that there should be reduced wages. Workers should be encouraged to regard leisure as one element of an improved standard of living and not


measure any improvement solely in terms of extra cash.
Are the unions content with the morality of some men working many hours' overtime while others are made redundant? Are they satisfied with a system in which the overtime that some men are working could have been shared among their colleagues to avoid some of the closures during the recession, to which the hon. Member for Norwich, South, (Mr. Garrett) has just referred.
After all this time, unions must realise that it cannot be in the interests of workers to allow dehumanising processes to exist. However, they will exist if there is no incentive to remove them. The key is the attitude of the trade unions.
On the question of profitability, it is symptomatic and politically cowardly that the unions have got half as much again as the Government originally offered, while industry is to receive only half as much as it asked for. There can never be a fine balance in such a formula, but that crude equation underlines the inadequacy of the proposals to relax the Price Code to restore industry's profits to a healthy level.
We can see that continual control on prices has only a limited, indeed, minimal impact on the cost of living. Since the Price Commission was established three years ago, prices have risen by 70 per cent. That surely demonstrates the ineffectiveness of price control in the face of inflation caused by other factors. But the small savings achieved by price control could make a significant difference to the prosperity of companies.
The 100 Group of the London and District Society of Chartered Accountants has calculated that if, during two and a half years of price control, businesses had been allowed to earn their previous level of profits, it would have added 1 per cent. a year to the retail price index and that if firms had been allowed to increase profits by 25 per cent., it would have had the effect of adding 2½ per cent. a year on the RPI. Last year, the rate of inflation was 10 times that figure. We can see how high a price we are paying for minimal impact.
The Government should ensure that industry is allowed to make more profits.

Artificially low prices are another unseen subsidy to the consumer.
The main problems on which action is needed are the bloated public expenditure programme and the burden of foreign borrowing. One area for retrenchment should be food subsidies, currently totalling £400 million a year. This largely indiscriminate and wasteful expenditure is one element in the increasing doubts which foreign bankers and investors have about our economic judgment.
We know that the benefits are widespread and unselective. It cannot but interest people who follow these issues that the average family receive 68p a week in subsidies, which is just about the same amount as the 60p a week by which the average household increased its expenditure on beer, wine and spirits last year. Similarly, it was reported that £30 million was bet on the Derby—not at Ascot, the subject of so much recent Left-wing apoplexy, but in the bracing, beery atmosphere of Epsom Downs.
I have always suspected that one of the reasons for the campaign for food subsidies was that working husbands do not always pass on to their wives enough, or any, of their wage increases. A recent survey reported that one-quarter of working-class wives received from their husbands nothing extra by way of housekeeping for the year ending January 1976—a period in which there was a £6-a-week pay award. Are the Government sure that they are not underpinning in this way the candyfloss economy which they have so heartily condemned in the past?
Public expenditure must be cut. The Prime Minister has said that he will make a statement on public expenditure before the Summer Recess, and that will he none too soon. The target dates for reducing the rate of inflation are already beginning to slide rapidly. It may well be that before long a member of the TUC will take the Secretary of State for Prices and Consumer Protection to one side to say "Shirley, your slippage is showing". Then there will be real trouble.
That is the situation that the Government face, and I look forward to the Prime Minister's statement. I suggest that it is made a fortnight today, namely,


on 20th July. That will be 10 years to the day when his right hon. Friend the Member for Huyton (Sir H. Wilson) came down with a bump to reality, on his return from Moscow in 1966. It will not be a year too soon.

8.1 p.m.

Mr. Ron Thomas: I shall make one or two comments on some of the points made by the Chancellor of the Exchequer and the right hon. and learned Member for Surrey, East (Sir G. Howe) before I comment on the White Paper.
At the beginning of the debate there was a good deal of discussion about the cause of inflation. One of the supposedly simple axioms in economics into which many people slip is that wage claims are responsible for inflation, and that inflation, with rising prices, is responsible for unemployment. That was one of the main themes running through the two Front-Bench speeches. But many of us still do not accept that wage claims should be put at the centre of the stage. We do not accept that they are mainly responsible for inflation.
To take the view that wage claims are at the centre of inflation is to disregard the lack of capital investment in British industry over decades, to disregard the considerable injection of price increases as a result of the devaluation of the pound, to disregard the penal rates of interest that find their way into the cost of business, or rents or mortgages, and to disregard the fact that with a low level of demand and a low level of production, many firms—if not practically every firm; certainly this applies to manufacturing industry—are working below their optimum level of capacity. Unit costs have risen considerably because of the low level of demand and low level of production.
I have outlined some of the main reasons for inflation. To isolate trade union bargaining as the main factor would not give us any answer in terms of inflation and unemployment. It would not tell us why other capitalist countries have experienced a high level of unemployment.
When the right hon. and learned Member for Surrey, East was talking about unemployment, and seemingly putting the

blame entirely on trade union bargaining, many of us tried to remind him of the 24 million or 25 million workers who are unemployed in capitalist States. Western Germany is an example. It has a high level of unemployment even after getting rid of all its visiting workers from Yugoslavia and goodness knows how many other countries. But it is a country that has followed the market policies advanced by the Opposition. I have never heard an Opposition Member claim that the German trade unions are responsible for inflation and, ipso facto, responsible for unemployment. It is necessary to look further to explain the high level of unemployment in capitalist States. To fail to do so would be completely to misunderstand the whole exercise of wage bargaining.
When trade union officers or shop stewards put a wage claim to an employer they have to show that prices have increased over the requisite period. I have never had experience of an employer who has said "There is £5 for what has happened over the past 12 months, and here is another couple of pounds because I believe that prices will rise over the next 12 months". Trade union bargainers chase price increases. They do not create them in the way that has been suggested.
The second main area to which I turn—this was touched on by my hon. Friend the Member for Norwich, South (Mr. Garrett)—is that we are still not convinced by any means that the so-called resurgence in world trade, that still seems to me a long time coming, will be the salvation of our economy and will reduce unemployment to a level that many of my hon. Friends will find acceptable. Unemployment statistics of the past 20 years tell us that as we have emerged from each slump we have left behind a higher hard-core level of unemployment. The unacceptable level of unemployment that reached its peak a few years ago has now become the norm, the target for which we should work. Indeed, there are some who say that if we can reduce unemployment to only 800,000 we shall achieve some kind of economic miracle.
I remember the Labour Party saying immediately after the war that it would find it unacceptable if anyone were unemployed and looking for a job. We have moved away from that approach


completely. When we listen to Chancellors now they do not mention full employment. They talk about a stable level of employment or unemployment that will not be allowed to rise above a certain level.
There are 1¼ million unemployed and hundreds of thousands on short-time working. Over the next 12 months or two years, another 600,000 bodies will come on to the labour force looking for jobs. We are asked to accept that the Government's present policies can deal with that situation, but I do not believe that they can. I doubt very much whether the upsurge in world trade will be able to deal with it.
British industry, because of the lack of capital investment, will not be able to take advantage of the great upsurge in world trade that is supposed to be coming. I believe that when it comes it will be the competitive firms in other countries that will be able to take advantage of it and that we shall have a massive inflow of imports. I believe that we shall be back again on the old stop-go treadmill.
The import statistics for last year—I deduct from the import bill the cost of oil because it distorts the figures—show that almost half of the £22,000 million import bill consisted of finished and semi-finished manufactured goods. They represented 30 per cent. of the import bill 10 years ago whereas they now represent almost 50 per cent. The Chancellor gave us some statistics about the resurgence in world trade that is supposed to be coming. There is no indication of it acting to our benefit in terms of the Department of Trade's Press Notice for June. The volume of exports increased by 5 per cent. but the volume of imports, although it increased slightly less in value terms, was far higher than exports.
The Department of Trade's Press Notice of 14th June states:
Imports of finished manufactures rose by 2½ per cent. in terms of volume.
That is at a time when sterling is devaluing at God knows how much. The notice continues:
but higher prices led to a value increase of 12 per cent. Within this group imports of machinery were 12 per cent. higher by value, mainly the result of higher prices, and there was a rise of 31 per cent. in the value of road motor vehicles and other transport equipment,

with higher volume contributing about two-thirds of the increase.
Even with the devaluation of sterling and the high costs that that will bring in terms of increased prices to millions of working people in Britain, this is still not sufficient. Still the imports are being sucked in. As we move towards any kind of growth, that will certainly be accentuated.
We are in a situation in which the present pay agreement will cut back substantially working peoples' consumption. Let us be clear about that. Taking away from the present increase the taxation and other payments which must be made, and setting that against price increases which have occurred or are in the pipeline, it will be seen that there will be a substantial cut-back in the standard of living of working people in terms of consumption. That, therefore, will have a considerable impact upon levels of unemployment. It will not be offset by the so-called resurgence in world trade.
I want to make a few brief points about the Price Code changes. I comment first on capital investment and investment relief. From a document that my right hon. Friend was kind enough to let me have, I understand that between September 1974 and May 1976 almost £600 million was given in capital investment and investment relief at the rate of 20 per cent. This rate is now to rise to 35 per cent. In my simple arithmetic terms, I assume that this will mean over £1,000 million, based on the 35 per cent.
I understand—my right hon. Friend will correct me if I am wrong—that the CBI was saying that for any new capital investment that was made, it should be allowed to increase prices by 100 per cent. of the cost to meet it. Presumably the CBI, like many, has now decided that the Stock Exchange is completely redundant, as are all the other financial institutions that exist, we are told, as part of the capital-raising machinery.
I am just not convinced that this money will be invested. I repeat what I said to my right hon. Friend the other day. Those who would have invested in any case—Vickers, ICI and all such companies—will still collect this 35 per cent. in addition. I am not satisfied that we cart prevent a considerable amount of this money finding its way overseas in overseas investment.
At the same time, as I understand the Price Code, companies will be allowed to move from a basis of historic cost to actual cost for 30 per cent. I do not know whether it is historic or actual cost, but the assets of ICI are over £1,000 million, and the assets of Vickers are about £90 million. If in one year they are allowed this 30 per cent. increase in depreciation alongside the 35 per cent. they are to get as investment allowances, and if with that they can also disregard 70 per cent. of stock appreciation, at the same time as the economic growth for which we hope and which may happen—and on the assumption that it does, which is what the Price Code is based on—half of any fall in unit costs due to the increase in production will go to the firms and only a half will be reflected in some way in a decrease in prices.
We all know that if working just below capacity, many capital intensive firms make a loss, but if they work 5 per cent. to 10 per cent. above capacity, they make massive profits. I find that unacceptable.
I notice that the nationalised industries are not eligible for this investment relief. Will my right hon. Friend explain why that is so?
This whole package will mean a considerable shift. I should like my right hon. Friend to put a global figure on it. I think that it is far higher than 1 per cent. of the Retail Prices Index. It will mean a considerable shift for working people towards the corporate sector. It will mean a cut in the standard of living of working people. This is the shift that has been demanded in the White Paper on the cuts in public expenditure. That is what that was all about.
We reject the belief that there is some undefined mysterious mechanism within the capitalist system which means that if one cuts public expenditure the resources so released will be directed into capital investment and exports. We rejected the analysis in the White Paper on that basis. We shall reject it again if there are further cuts in public expenditure on that basis.
As I have said, this package, in global terms, represents a considerble shift from the consumers, working people, in terms of increased prices, to the corporate

sector. I am not convinced that it will find its way into exports and capital investment. Rather, I believe that it will find its way into capital investment overseas and other speculative investment with which we are all familiar.

8.16 p.m.

Mr. Alan Clark: I listened with great interest to the speech of the hon. Member for Bristol, North-West (Mr. Thomas). I am very glad to follow the theme with which he started his address, because the White Paper that we are debating this evening and which was the basis on which the Chancellor made his speech is, when stripped of its verbiage and all the ineffective hypocrisy that pervades the language, that curious mixture of the nanny and the witch doctor, which muddles all documents that come from the joint hand of the Treasury and the academic economists who seem to combine to produce the texts.
The message and theme of the document that we are debating is how to hold wages down, no less. I would hope that my hon. Friends, and particularly my right hon. Friends, would see that the time has now come when we might consider dissociating ourselves from this theme, because we are, after all, the party that protects, in particular, these freedoms and properties from the encroachment of the State. Of all a man's properties, his earning power must rank before everything else. It ranks before his house, his savings and his other material possessions. It is incomprehensible to me that the Conservative Party should ever in any way be associated with what is, however disguised, an attack on a man's earning power.
Labour Members should remember that they, too, are in the property business. A man's earning power is his first property. I know that some of them believe, or profess to believe, that the prime source of wealth in industry and commerce is the labour that goes into it. However, where is the wealth that comes out to be spent? Is it to be spent on COMECON bonds at 2½ per cent., or is it to go back into goods and services that generate further prosperity? There is, therefore, upon them also an obligation to see that a man's earning power remains inviolate.
Second only to a man's earning power is his right to be distinguished, on the basis of his skill, experience and status and the danger of the job he is doing, from those who do less skilful, less important or less dangerous jobs. Here, too, at the back of the document, there are some tables that show how these differentials or distinctions are also to be attacked. I suppose that it is incomprehensible to the Government Front Bench that there may be a reason why one man is paid less than another. All the energies of the Government are directed to compressing the gap between them, thus degrading and demoralising—it would be a miracle if it did not happen—those who earn more on account of their skills than those who, for various reasons, are at the lower end of the scale.
The major element in our problem is the question of incentive. Incentive attaches primarily to a man's earning power. The trade unions, above all else, are responsible for protecting this, but they have abdicated that responsibility. They have sold their own members down the river. For what price? It is for a spurious power; for the right to participate in governmental decisions; for the right to extend their activities outside what is their proper fief.
It was for something about which many of us, in the February 1974 election, at the time of the first intrusion of the concept of the social contract, warned. When the unions were seduced into territory quite outside their proper province, when they were invited to make judgments and assess the merits of the Government's policies, they were abdicating their first duty, which was to look after the interests and, above all else, the earnings, of their own members.
Here they now are, only two years later, going along with the Government and selling their own members down the river. Of course there are pious and widely accepted reasons which apparently justify their doing this. We are told that inflation is caused by high wages. This has become a tenet of almost universal acceptance. It is easy to see why employers subscribe to this view. It is very convenient for them. It is easy to see why Socialist politicians subscribe to it. They do not want high earnings. The more a man earns, the

more independent he is and it is not in the interests of Socialism that earnings should be high.
Socialists, too, subscribe to the myth that wages and earnings contribute to inflation and that they must be suppressed. But how or why the Conservative Party should go along with this theory I find less easy to understand. We are told—there has been much publicity about it—that my right hon. Friend the Member for Sidcup (Mr. Heath) will say something on this subject tomorrow. We shall listen to that speech with the greatest interest and see whether, like his many other virtues, an intelligent flexibility is now advancing to a prominent position.
Pending that, I can only warn my hon. Friends that they are in very dangerous territory in subscribing to the view that it is wages that cause inflation. It is for this reason that I completely endorse the opening remarks so eloquently made by my right hon. Friend the Member for Surrey, East (Sir G. Howe). Part of the error may arise because, although it is true that an inflationary condition may be temporarily abated, by clamping down on wages, it is no more accurate to say that it is being treated than it would be accurate to say that a bacterial fever is being cured by putting the patient in an iced bath. One could reduce his temperature and even briefly get a normal reading on a clinical thermometer, but one would not have cured the disease.
The professions in this document, that it is the desire of the Government to attack inflation, are quite misleading. I believe them to be fraudulent, because Governments, particularly Socialist Governments, like inflation. They need inflation if they are to carry out their purposes. If inflation is bad, deflation must be good. Do they want deflation? They would not recognise deflation if they saw it. If deflation came over the hill, and they could see what it was, they would run a mile. Do hon. Members know when we last had deflation? Do they even know what net deflation is? Members may care to recall what it is. It means that on 1st January of one year the same wage will buy more in goods and services than it did on 1st January the previous year. The last time this happened was in 1936.

The Secretary of State for Prices and Consumer Protection and Paymaster General (Mrs. Shirley Williams): I merely observe, it sure was.

Mr. Clark: Perhaps the right hon. Lady is thinking of the unemployment figures in 1936. The unemployment figure in that year was 1·6 million. After deducting all those twilight areas that we have at the moment, where unemployment is concealed by job creation and subsidies, and curious schemes to retain people on the books for doing no work at all, I do not see that the unemployment is concealed by job creation a net deflation, are any greater—they could even be slightly smaller—than the unemployment figure that exists today.

Mr. Hooley: The hon. Gentleman cannot have made a serious calculation, because the activity rate in those days was vastly lower, since the vast majority of women were at home and not working as they are now.

Mr. Clark: I was not wishing to comment on women staying at home. It is perfectly possible for these figures to be juggled and jiggled to prove various things, but we must accept that they are net figures issued in the HMSO tables for the relevant years.
However, if deflation is what Governments want they can do it overnight. I refer to the nanny-like theme of some of the texts contained in "The Attack on Inflation". There is one very good sentence:
It is just no good paying ourselves in confetti".
That could easily be dealt with. We could call in all the paper money and put it through the shredder and introduce, as our prime unit of currency and exchange, a quarter ounce disc of solid gold. We might even feel disposed to put an effigy of the Head of the State on one side. It might even be called a sovereign. If that were our currency we would have got a reduction in inflation.
However, the confession that the Government are serious in tackling inflation is compeltely fraudulent. Socialist Governments need inflation because it provides for them a never-never system whereby they can purchase the commodity that they need most, namely, votes. It gives them an enormous cash

flow, which they can direct—first by the taxation that they raise and recycle, and, secondly, by means of the money that they can borrow or print and thereby direct towards whichever section of the community they feel most needs placating.
This purchasing of votes by redirection of resources is turning this country into some kind of rotten borough. It makes the holding down of wages much more effective and is a deliberate repression of the natural level of prosperity and earnings of the majority of the population.
For that reason, I regard it as the duty of the House of Commons to reject the claims, assertions and the spurious and bogus contentions in this White Paper. I believe that, in so doing, we shall be acting in the best interests of the majority of our people.

8.30 p.m.

Mr. Frank Hooley: Ten years ago this House first embarked on a major programme involving a prices and incomes policy. At that time we spoke about a statutory policy, and since then the argument has fluctuated to and fro on whether the policy should be statutory, voluntary, or a mixture of the two. Again, we have returned to the necessity for some kind of governmental intervention and direction in this area. It is interesting in this debate to see that even the Opposition have more or less paid lip-service in their amendment to the need for a prices and incomes policy of some kind.
I have always supported this concept and have been puzzled by my colleagues who have opposed it, because we share the view that, if we are to have a sensible direction of our national economy, economic planning is essential.
The current policy clearly has had some success in bringing down the rate of inflation, it has made some contribution towards easing our balance of payments situation, and to some extent it has contributed to industrial peace. A major cause of dissension in industrial relations has been the feeling that one group has been achieving a better deal than another group. Certainly the concept of a single £6 rate went a long way towards reducing though not eliminating, the feeling among varying groups of workers that one section


of the community was being better treated than another. Therefore, I think it can be said that on those three grounds—a reduced rate of inflation, assistance to the balance of payments, and improved industrial peace—the Government's policy so far has made a valuable contribution.
However, the most unacceptable part of the policy has been the fact that it has made no contribution towards reducing unemployment This is the key political and economic issue to which the Government must bend their minds in the next few months I shall not support a policy which has behind it the cheerful attitude "Perhaps by 1979 unemployment will be brought down to about 3 per cent.". A figure of 800,000 unemployed is not acceptable to me. I want to see the rate of unemployment rapidly reduced. I see no economic sense in having 1,250,000 men and women, boys and girls, doing nothing and making no active contribution to the well-being of our economy. Therefore, whatever argument the Government may produce in this debate and in the next few months, their central theme must be the fact that they are grappling with the problem of unemployment and are steadily reducing it. If that does not happen, their political support in the House and in the trade union movement will wither.
One curious aspect of the effect of the policy of the past few months is that the trade union movement has responded outstandingly and with great statesmanship to the overtures of the Government. The trade union movement has entered into the dialogue and has fulfilled the terms of the £6 policy, and I believe that it will also do so in terms of the 4½ per cent. policy.
In the meantime, what have private manufacturing industry and the CBI been doing? It is generally accepted that British industry badly needs to invest if we are to modernise our industrial base and to sustain both public expenditure and private consumption. The money has been there if needed. Every account I read in the financial Press informs me that there are massive funds available from the banks and institutions But that investment has not been made. British manufacturing private industry has not

been investing over the past year, nor is it doing so at the present time on the scale required.
British industry seems to take the view that it must be bribed, persuaded, cajoled or bullied into doing what its major industrial competitors elsewhere do as a matter of course. Industrialists always argue that there are no profits, or that the time it not right, or that we are at the bottom or the top of a recession. The argument is always trotted out by private industrialists that now is never the right time to invest. However, in every major industrial country in the world—the United States, Japan, France, Germany, Sweden—it is taken for granted that a high level of investment is essential to any industrial nation that wishes to export, trade and develop in world markets.
We must demand from the CBI a more forthcoming attitude on the question of investment. It must explain its attitude—and not make excuses. Investment is an essential and normal part of modern industrial behaviour. It is not an optional extra that we may put on or take off as the current circumstances demand.
We now have a great pool of unused manpower. Industry cannot complain, as it complained in the past, that it cannot compete for manpower with the public sector, or that it must pay extortionate prices to recruit men or women to do whatever jobs are needed, or that it simply cannot persuade people to do certain jobs. The manpower is there. It is high time that industry set about recruiting and using it.
Reference was made to the better performance of the German economy in recent years. One of the reasons for that is that the German economy sucked in up to 3 million immigrant workers from all parts of Europe to man its manufacturing industries. In many cases—this is difficult to say—they did jobs which the German workers were not keen on doing. The manpower was there. The Germans were faced with the necessity of drawing in 3 million workers to keep their economy expanding.
British industry now has the opportunity of using idle manpower, which amounts to 1¼ million men, women, boys


and girls. It is of the greatest importance that industry should recruit those people and put them to active work.
Despite comments to the contrary, there is a big world demand for British products. I have travelled abroad only a little in comparison with some other Members of Parliament. When I have been abroad I have not received complaints about British goods, or about their quality or design. The complaint was always that the goods were not available.
There is now a general upturn and expansion of world trade, especially in some of the newly-rich oil countries. Some countries are enjoying better standards of living as a result of rising commodity prices on the world markets. They are prepared to buy British goods. The only question is, why are these goods not available. British manufacturing industry must address itself to this problem and deliberately set out, by expansion, investment and increasing its manpower to satisfy world demand which undoubtedly exists.
I am given to understand that the Government may argue that unless we cut back on some aspects of public expenditure, manufacturing industry will not be able to expand in the way I have described, which I consider to be desirable. But I cannot possibly accept that argument when there are 1¼ million men, women, boys and girls unemployed.
It is possible to argue—as I think my hon. Friend the Member for Penistone (Mr. Mendelson) argued earlier—that there may be a high level of services and social effort which our economy could not sustain, and that there may be an optimum level. But it is clear that in terms of real resources we have nowhere near approached that level at present. With vast numbers of men and women unemployed it is absurd to cut down on the public sector whose main raw material is manpower so as to make room for manufacturing industry. Until manufacturing industry uses up all the unused wealth of manpower, there is no case for cutting back public expenditure, either on the social services or on electricity, gas and so on.
As I have said, the money, the manpower and the markets are there. The

difficult question is, what do we do if private industry still refuses, despite the vast bribes of taxation and so on offered by the Government, to get on with the job and make the same kind of statesmanlike response to the country's needs as the TUC has made? In that situation, the Government must use the instruments, imperfect though they are, which we already possess.
The resources of the National Enterprise Board will have to be greatly expanded. We shall have to take greater control over the institutions, the money they possess and the directions in which they lend it. We may have to take more direct control of bank lending.

Mr. Budgen: Does the hon. Gentleman believe that all pension funds should be taken over, too? If he does, would he tell the House what sort of response he has had to that idea from many of his constituents?

Mr. Hooley: There is clearly a strong case for seeing that pension funds are invested in the real wealth of this country, which is manufacturing industry, rather than in property and such things which have no relevance to expanding basic wealth. If it were necessary to channel a proportion of pension funds into manufacturing industry, that would in the long term benefit precisely those workers whose funds were so channelled.
The other instrument in the Government's hands is the use of the public corporations to develop an export capacity. In the past we have probably to some extent neglected the possibility that railway workshops and the expertise of the CEGB and the Gas Corporation, for example, could be deployed to much greater effect in world markets—both directly in producing things which other countries wish to buy and indirectly in consultancy services and so on. The public corporations have not been used to help our export potential nearly as much as they could be.
I have always supported the concept of a prices and incomes policy. The current policy has contributed in important respects to the recovery of our economy. But if it makes no contribution to solving the unemployment problem, politically it will cease to be effective.

8.44 p.m.

Mr. John Wakeham: I suppose that it is inevitable in a debate such as this that there should be a lot of common ground on objectives and that where we differ is about solutions. I would not quarrel with the objective of adopting policies which will reduce, if not eliminate, inflation. I would certainly support policies to encourage more investment, particularly in manufacturing industry but also in commerce and the service industries.
The principal advantage of having any Price Code at all—I am not sure whether there is an advantage—must be that it persuades the TUC to agree to support a policy of wage restraint. Certainly by itself the Price Code has very little effect on inflation. If anything, probably it can be argued that it is inflationary, because the holding down of prices artificially, either in the public or the private sector, produces a hidden subsidy to the consumer and switches resources away from the corporate sector into consumption, thereby, it seems to me, increasing inflation.
The Secretary of State recently said—as she is perfectly entitled to do—that if she were devising a price code from scratch, she would, like the Irishman, not start from where she is now. That was a perfectly fair and reasonable remark to make. I do not think one can necessarily hold her responsible for all the shortcomings in the Price Code.
I declare an interest here, in the sense that my company has to try to work the Price Code from a practical point of view. But, as industry and the Price Commission have gained experience of the code, some of the practical difficulties have lessened. Indeed, I would prefer to accept some of the disadvantages of the present Price Code rather than having to go through the whole business of learning the system again and trying to work a new one.
Nevertheless, it is an extremely expensive burden for industry to bear, and I notice that the Department is not able to estimate what it costs industry or the Price Commission to administer the service. But we are entitled to say to the right hon. Lady, when she makes changes in the Price Code, that while we cannot necessarily hold her responsible for all the

imperfections of the past, we can look at some of the changes she is making in order to see whether they are moves in the right direction.
I believe that paragraph 45 is quite unacceptable. In this paragraph the Secretary of State has attempted to adjust the categories to take into account inflation since the previous figures were set in, I believe, April 1973. I make my comments in this respect in line with the right hon. Lady's comments recently that she felt that the Price Commission and industry were working the system extremely well. I was very surprised to find that, in Category 2 and Category 3, the adjustments she makes, with the exception of manufacturing industry, are not sufficient to take into account the increase in the Retail Prices Index.
It is a very fair complaint from industry that, in view of the practical problems with which both sides of industry have had to deal—and the Price Commission in working the Price Code, whether we agree with it or not—we should be moving to a point where we have higher figures rather than lower. There should have been some recognition of this for a change in the figures.
Secondly, I think that the investment provisions are still inadequate, but they are much better than they were under the previous arrangements.
There is a great deal of evidence—here I comment on something to which the hon. Member for Plymouth, Sutton (Mr. Clark) referred—that in each recovery cycle, not just in the United Kingdom but perhaps more so here than anywhere else, investment recovery has been slower, and more artificial stimuli appear to be required for private enterprise.
In this country we have had a considerable history of investment allowances, grants and depreciation allowances, interspersed with exhortations from politicians from all parties, trying to persuade private enterprise to invest more capital in manufacturing and other plant. Still our performance is poor, and the fundamental reason for that poor investment performance is the low profitability of British industry. The Secretary of State talks about the relaxations in the Price Code increasing the return of capital from about 2 per cent. to about 3 per cent. That is not exactly a wild bonanza.
Other factors have played a part in industry's failure to invest. With high interest rates, companies have been reluctant to commit themselves to long-term borrowing at fixed rates of interest. Difficulties are caused when a company commits itself to a substantial long-term funding operation at high interest rates and those interest rates subsequently fall. For many companies that has been a factor over several years. That has meant that they have an inadequate capital base for their investment, and that has produced a substantial weakening in their financial strength, because their ratio of short-term bank finance to fixed capital has been steadily increasing. I make no party point here. The evidence is that it has been steadily increasing from about 30 per cent. in 1960 to about 70 per cent. in 1975.
For people who run businesses, short-term loans have one advantage in a world of many disadvantages. The one advantage is that they are indexed to the rise and fall of interest rates in the market. The factor of high rates of interest has been of considerable concern to companies.
I come to the nub of my remarks. It is doubtful whether we shall achieve a return to adequate levels of investment so long as we have inflation and uncertainty about future interest levels. For as long as we find it necessary to adopt Price Code arrangements we shall have inflation. If those arrangements work effectively they hold down prices for consumers and that, paradoxically, causes inflation.
I accept that there is a psychological advantage in the Price Code if it helps wage control, but I urge the Government not to underestimate the psychological disadvantage to those who make investment decisions. By their existence the Price Code arrangements have a deterrent effect on those who make investment decisions, and the Government must do more to recognise that.
I should like the Price Code arrangements to contain no restraint on investment. Unlike tax relief, that could be done without additional cost. It would appeal to the TUC, because artificial restraints on investment cannot be to the benefit either of working people or of companies. I believe that it is possible

to sell that method of increasing investment in the interests of all.

8.55 p.m.

Mr. Ted Fletcher: This has been a wide-ranging debate on the incomes policies that are being followed by the Government. A tribute has been paid to the part played by the trade union movement in securing agreement with the Government on a pay policy limiting pay to £6 a week at present and to 4½ per cent. in the future. But because the agreement has been reached, the Government must not assume that the present policies have the backing of the TUC. The philosophy of the trade union movement has been set out in its 1976 economic document, which suggests a number of roads along which the Government must travel.
Although the TUC is prepared to reach agreement on a wages policy, in view of the increasing inflation, it assumes that the Government intend to carry out their part of the social contract by following some of the policies in that document. For example, the TUC wants to see control of the export of capital and selective import controls—in particular, in the textile and footwear industries. It wants the Government to get on with the job of introducing a wealth tax, but the Government seem to be dragging their feet on that issue.
Those measures must form the basis of Government policy if the TUC is to continue its co-operation. The TUC wants controlled reflation rather than cut-backs in public expenditure. Most important, it wants steps to be taken by the Government to reduce the rising tide of unemployment. It will look with a jaundiced eye on the relaxing of price controls, which will add 1 per cent. or 2 per cent. to the cost of living at a time when wages are tied down. In particular, many trade unions are campaigning against the projected cuts in public expenditure.
We have been told that another announcement about further cuts in public expenditure may be made shortly, possibly during the recess, if past Government practice is followed. The Government have put forward two arguments to back their case for public expenditure cuts. The first is that we must reduce our borrowing requirement and the


second is that wealth must be diverted to productive industry.
I say to the Government that they cannot lower their borrowing requirement if they want to sustain a high level of employment, because cuts in public expenditure will mean a loss of jobs in the Civil Service, local government and nationalised undertakings. Our borrowing requirement is the same when people are unemployed as it is when they are employed.
Earlier this year I asked the Chancellor of the Exchequer
if he will itemise the cost to the state that would arise if a married man with two dependent children earning £3,000 per year and having worked for 20 years became unemployed, under the following headings: (1) loss of income tax, (2) loss of national insurance contribution, (3) cost of flat rate benefit, (4) cost of earnings-related benefit, (5) cost of supplementary benefit and (6) cost of redundancy pay."—[Official Report, 23rd March 1976; Vol. 908, c. 131.]
The answer was that the cost to the State would be £3,187 for that man, earning £3,000 a year. It would cost the State more to keep that man unemployed, at least for the first 12 months, until his wage-related benefit and redundancy pay had been exhausted, than to see him employed as a local government officer or civil servant.
How can the Government lessen their borrowing requirement if they borrow as much to keep people out of work? How do they divert capital to productive industry when they pay more to keep a man idle than they do when he is in full employment? Those are substantial arguments that will be deployed, particularly on the Government side of the Chamber, when my right hon. Friends' projected cuts in public expenditure take place.
I am not against cuts in public expenditure. We could reconsider defence expenditure, and I am sure that there are certain areas, such as our Diplomatic Service, in which cuts could be made. But if the cuts are, in the last analysis, to be made at the expense of jobs in our public enterprises, local government and the Civil Service, we save nothing by keeping hundreds of thousands of people unemployed when we could be paying them to engage in public activity.
The whole lesson of slumps throughout the world—and I speak with some knowledge of the slump in the 1930s—is that nations have bought their way out of them by reflating the economy. It was done in the United States in the 1930s with such projects as the Tennessee Valley development. Hundreds of millions of dollars were poured into public enterprise, and that ended the slump. In this country the 1930s slump was also ended by public expenditure on the production of armaments, and so on, because of the war which many of us could see was inevitable in 1939. Money could not be found to finance industry in the early 1930s, but it could be found when armaments were necessary to defend this country.
Japan and West Germany are embarking on vast programmes of public expansion. They are seeking to reflate out of a crisis that is endemic in the capitalist system of society in which we live. It is wrong for us to talk about cutting back when it costs us more to cut back public expenditure than to keep people in productive employment.
Those are some of the arguments that will be rehearsed time and again when we battle with our Government—the Government that we put in power—to see that we sustain as far as possible a system of full employment that guarantees a man a job. We were sent here to sustain employment, to increase the standard of living. That is what some of us will be battling for in the months ahead.

9.3 p.m.

Mr. David Madel: I do not think that any hon. Member who has spoken in the debate has underestimated the difficulties that the present Government or any Government would have in reaching an agreement with the TUC on pay policy. But the Government are suffering from a double difficulty in their negotiations—falling living standards and rising unemployment.
I do not think that the Government realise what deep trouble they are getting into over the whole question of increasing unemployment. The Chancellor of the Exchequer tried to give the impression this afternoon that he had been


incredibly clever in reaching his agreement. I think that he has been incredibly lucky. Whether the pay policy survives until July 1977 is very much a matter of conjecture.
There are many dangers in a simple, flat-rate pay policy. There is the problem of the intricate structure of a work force and the time it has taken in industry to negotiate differentials and the relationship of one part of the work force to another. There is also the problem of the union designed for people in a career industry, where promotion and regular pay increases are fully accepted, and there is all the work that has been done in many industries on a job-evaluated pay structure. All this is put into cold storage when we have a mere flat-rate pay policy.
There is a further problem which the Government cannot escape. Three or four years ago a number of parity agreements were negotiated and this year the unions were expecting those to be completed. They have been told, of course, that they can have either the £6 or a parity agreement but not both. This is another strain of which the Government do not seem to be fully aware. Two years of flat-rate policy, which is what we are being asked to accept, produces real tensions and difficulties.
Nor does this policy operate in a vacuum. Halfway through his speech the Chancellor made a very significant remark. He said that increases in world commodity prices were sharper to date than had been expected. If this goes on that is a further enormous strain which the Government and the unions will have to take on this pay policy.
When the party on this side were in Government we saw what happened when commodity and oil prices went through the roof in 1973. I felt that when the Chancellor of the Exchequer was speaking he was saying that everything in the garden was lovely. I suggest that it is not and that there are very significant dangers ahead.
There is the further problem that an increasing number of people feel that, given the pay policy, it is not financially worth while to accept a more arduous job. If people do not do so, if they will not take a more responsible job, that increases the difficulties of a particular firm.
There is one point of detail which I hope the Government can answer in the next two days. They have embarked on a temporary employment subsidy. Many firms have applied for it. I should like to know whether the Government are satisfied that there is a sufficient number of inspectors to process applications from firms for the temporary employment subsidy. I have some indications that while applications have gone in, it takes a very long time for the subsidy to be received from the Government. This can put some firms in an extremely precarious situation.
Much of our debate has dealt with the problems of training difficulties and bottlenecks. Last week the Government produced their consultative document "Training for Skills". On page 7 of that document the Government give an estimate of where they believe the skill shortages are likely to occur and refer to mechanical engineering, instrument engineering, electrical engineering and construction. I would ask the Government whether they ought not to think very carefully about the number of teachers who will be unable to get a job in the coming academic year. The Government have not yet decided whether those people should do their probationary year of teaching. Ought we not to know how many teachers are qualified in science and mathematics? Ought we not to ask, if we want to give children a sound scientific education, as we ought to do, whether they will be better prepared to train for these skills if we are likely to be short? In other words, we need all the science teachers we can get.
The Government have said that they will welcome comments on this document and that they want these to be received by 29th October next. Teacher unemployment and the question of teachers who are trained in mathematics and science and are unemployed will have to have urgent attention. In this document, the Government also refer to geographical mismatch and mobility caused partly by housing difficulties. This is something to which the Government must give urgent attention. The co-operation between housing departments of councils and those who wish to transfer their jobs and homes, and the information exchanged, is nothing like good enough. When we consider the use to which we


put computers in this country, for example in dealing with centralised vehicle driving licences, we feel that there is an urgent need for something to be done on this whole question of matching one area to another. The Government hint at this on page 7 of the document.
The time has come to move quickly ahead to ensure that local authorities act much more in co-operation with each other on housing exchanges so that people with a particular skill can easily change their job by moving from one part of the country to another. Page 8 of the document refers to the fact that in periods of recession employers are obliged to cut back on the number of people taken on for training. This is something all Governments have discovered since the war.
However, I suggest to the Government that when they hint in this document about the costs of collective funding, clearly the lion's share of the cost will have to be met by the Government. With the recession and the difficulties which so many firms are in, for the Government to think and to hint about firms paying large contributions towards training is quite unreasonable. In view of the present economic situation, contributions on the scale which appear to be envisaged by the Government cannot easily be undertaken by firms.
Then the Government refer to sponsored training schemes. These schemes are designed normally for young people under the age of 19 who cannot get on sponsored training schemes where employers sponsor people for courses in skill centres. I hope that the Government will look again at the age limit to see whether they cannot lower it.
The Government ought also to look at day release schemes to see whether there is not a need for the kind of package day release scheme which in my view will be essential if we are to have more people trained for skills in industry. A day release package scheme is essential for the good functioning of the economy.
Those are just a few thoughts on training. Unless we get it right, the bottlenecks about which we have heard will never be overcome.
I conclude with a few remarks on the future of the incomes policy. We may get through the next year, but there may

be one or two dents in the incomes policy. If there are, I hope that we shall not have hysteria in the Press suggesting that a dent has become a big hole in the policy and that the whole policy is about to come crashing down in ruins. I was in favour of a dent being made for the miners in 1974, as were other of my hon. Friends. But we have to understand what is likely to happen when we get out of stage 2. Do we have a relativities commission? Can we staff it properly? Can it look properly into differentials and skills? How quickly can it report? How quickly can it act?
In my view, any chance of stage 3 succeeding and taking into account differentials is doomed unless there is some measure of economic growth. Underlying all this is that this Government have struck an iceberg in terms of youth unemployment. Unless we do better in training people for skills and getting people more easily into industry from school, a real social problem is upon us which we have not yet faced.

9.12 p.m.

Mr. David Knox: We have had a very interesting debate, and there has been a much wider measure of agreement between the two sides of the House than is normal on occasions like this. I welcome this, especially as far as it concerns my own party, at present temporarily in opposition but showing a political maturity which is unusual in Oppositions. This attitude was represented clearly in the outstanding speech earlier by my hon. Friend the Member for Horncastle (Mr. Tapsell) and in the excellent speech by my hon. Friend the Member for Bedfordshire, South (Mr. Madel).
Nothing annoys the public more and nothing does more harm to the standing of this House outside than for politicians in Opposition to attack the actions of the Government of the day when they know and everyone else knows that if they had been in office they would be doing as the Government are doing. In recent years, this has happened over a number of issues. The attitude of the Labour Party to the Common Market between 1971 and 1974 comes readily to mind. The attitude of both parties to the principle of incomes policies over the past 15 years comes equally readily


to mind. Neither party can take much credit for its behaviour in opposition on that issue.
I think that I can claim, however, that the present Conservative Opposition probably emerge with most credit—or with least discredit—on this. The Labour Opposition in the 1960s attacked in principle the incomes policy of my right hon. Friend the Member for Chipping Barnet (Mr. Maudling). The Conservative Opposition attacked in principle the incomes policy of the Labour Government between 1964 and 1970. The Labour Opposition attacked in principle the incomes policy of the Conservative Government between 1970 and 1974. I know that some of my hon. Friends would like to attack in principle the incomes policy of the present Government but I am pleased to say that, to date, the official Conservative line has been to refrain from doing so.
All this, even though we all know that the present Government and the two immediate predecessor Governments, despite pre-election pledges to the contrary, were forced to introduce not just incomes policies, but statutory incomes policies. They did so not because they wanted to but because events forced them to do so. They did so not because, in government, they became blind to the disadvantages of an incomes policy which they had perceived so clearly in opposition, but because it became apparent that the balance of advantages and disadvantages came down on the side of an incomes policy.
Those of us who have advocated an incomes policy are not blind to its weaknesses. We understand them only too clearly. We recognise that an incomes policy introduces a degree of rigidity into the labour market, which places a great strain on it. Then there is the difficulty of differentials and the weakening of incentives to upper and middle management. Also, there is inherent in any statutory incomes policy the possibility of confrontation between the Government and a powerful trade union, with all that can mean.
Those are real weaknesses, and there are many others that I, as a supporter of an incomes policy, readily concede. But I do wish that those who are opposed to an incomes policy would

just as readily concede the disadvantages of rejecting such a policy for the disadvantages are real and substantial.
In the absence of an incomes policy the level of unemployment will have to be much higher if income-cost inflation is to be avoided. In fact, recent evidence suggests that "much higher" means considerably higher than the present intolerable level of 1,300,000 out of work. What would the effect of this be in a society? What would the effect be in our country in which the unemployment level was down to 1 per cent. in the mid-1950s and 1960s, and half a million just over two years ago? How would our people react to an unemployment level three or four times that level? For this would be the price for avoiding inflation in the absence of an incomes policy.
Apart from the economic waste, such unemployment would lead to the alienation of many hundreds of thousands, if not millions, of our fellow citizens from the society in which they live. The degree of alienation among younger people, particularly young black people, could reach explosion point.
High unemployment is one of the disadvantages of rejecting an incomes policy, but in the absence of such a policy not only would unemployment be higher, but the deflation of the economy necessary to curb inflation would mean that the level of industrial output in relation to capital capacity would be much lower, and plant and equipment would be under-utilised. No industrialist I know would increase investment in new plant and equipment if his existing stock was substantially under-utilised. Therefore, the incentive to invest would be severely reduced, with adverse consequences to the long-term strength of the economy.
There are many other disadvantages in not having an incomes policy, but I hope that detailing these two disadvantages will suffice to show why I believe that the disadvantages of rejecting such a policy are substantially greater than the disadvantages of having one.
However, though I believe that an incomes policy is essential this does not mean that I think that, in itself, an incomes policy is sufficient to control inflation. Other policies of a monetary and fiscal nature have an equally important part to play. In my view an


incomes policy without the correct monetary and fiscal policies could not be expected to succeed any more than fiscal and monetary policies without an incomes policy could be expected to succeed.
For example, although tight control of the money supply will contribute to controlling inflation, dependence solely upon it will not enable us to avoid inflation, for a number of reasons. First, it is very difficult to quantify exactly the increase in the money supply. As Mr. Burns said to a recent Congressional Committee about defining what had happened to the money supply in the United States in February:
We published an increase of 6·5%. It might have been, using a different seasonal correction, zero and might have been 10·6%.
Second, any measure of money supply inevitably excludes an increasing number of transactions which have economic significance but which do not involve the use of money. Third, it is not possible to forecast the velocity of circulation of money in advance, and upward and downward movements inevitably have economic significance. Fourth, as my right hon. Friend the Member for Chipping Barnet frequently points out, tight control of the money supply can result in firms, especially capital-intensive firms, conceding exorbitant wage and salary claims with severe inflationary consequences. If the availability of funds was more adequate to cover their overhead costs during a strike, firms might feel able to resist such strikes and eventually settle at a less inflationary level.
I make these points about the defects and deficiencies of controlling the money supply, not because I do not think that it is important but rather to show that in itself it is unlikely to be a panacea for all our problems. To beat inflation and our other economic problems we need a combination of monetary, fiscal and incomes policy. My plea therefore is to get away from these fruitless doctrinaire arguments for or against one policy or another, and to recognise that all policies have advantages and disadvantages, and that our best hope of success rests in a judicious mixture of monetary, fiscal and incomes policies. Each on its own is not perfect, but, taken

together, while they may still fall short of perfection they may bring us as near to it as we are ever likely to get.
I turn briefly to the mechanics of the present incomes policy. I note in passing that the second phase of the Labour Government's incomes policy, like the first, is statutory. Page 11 of the White Paper sets out three orders required under the heading "Legislative Steps", so let us not have any argument from the Labour Benches about it not being a statutory policy. It would be churlish to deny the success of the £6 limit. It was not perfect, but it has worked moderately well. As the White Paper states
Over the past year, this policy has been fully observed throughout the economy.
Wage and salary settlements have been much lower in the past year and the rate of inflation has been braked back. That rate is still too high, and although the Government's target to reduce it to less than 10 per cent. by the end of this year will not be achieved, inflation has been halved in the past year, and that is creditworthy. I do not think that would have happened without an incomes policy, or certainly not to the degree that it has.
The 4½ per cent. policy outlined in the White Paper is not perfect, either. However, just as 12 months ago the £6 limit was the best incomes policy we had, so now the 4½ per cent. policy is the best incomes policy we have. I hope that it works as well as the £6 limit worked, not because the Government deserve it to work but because it is in the national interest that it should. Whatever the Government may say about inflation and the success of their policy against it during the past year—and I concede that success—they can never be forgiven for abandoning the incomes policy of the last Conservative Government when Labour took over in February 1974. They can never be forgiven for permitting and encouraging the wage and salary explosion of 1974 and early 1975. The hyperinflation that we faced last July was of their making and of no one else's.
The harsh consequences of withdrawal from that hyper-inflation, involving as they do hundreds of thousands of people being unnecessarily unemployed—many of them school leavers and immigrants—is the price that the ordinary people are being asked to pay for the wage and


salary free-for-all that the Government encouraged between March 1974 and July 1975. As these consequences bite harder it is no wonder that the electorate in by-elections and local government elections, are turning increasingly against the Government. It is no more than they deserve.

9.25 p.m.

Mr. David Crouch: I am happy to be called even at this late hour, and I am aware how little time I have to develop my arguments.
I am pleased that the hon. Member for Penistone (Mr. Mendelson) is here. He had a flaming row with my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) and recovered some of his poise—I almost said dignity, but the hon. Gentleman always has that, even when in dispute with you, Mr. Speaker—in a very valuable contribution from the point of view of those sitting below the Gangway opposite on the vexed problem of the prices and pay policy which the Government are forced to follow.
Last July, I welcomed the Government's £6 pay limit and I wished the Chancellor of the Exchequer will in the spring of this year with his even tougher proposals for, in effect, a £4·50 a week pay limit. My hon. Friend the Member for Leek (Mr. Knox) has given us some wise words, which too few people heard, on the problems of such a policy. He gave an extremely valuable commentary on the advantages and disadvantages of such rigorous pay policies.
I stand by what I said in July and in the spring on these policies. The country needs such policies and I value very much the remarkable acceptance of them—by a majority of nearly 18 to 1—by the TUC. They have supported a tough personal policy for the 10 million workers concerned and have endorsed a policy of tough self-denial.

Mr. John Page: What about the other 14 million workers?

Mr. Crouch: I have not forgotten them, especially those in middle management who are earning more than £8,500 a year. They should not be brushed aside or regarded by Parliament as not needing better remuneration to meet the 18 per cent. inflation with which we still have to live. I hope that answers my hon. Friend's question.
In an extremely interesting and very good speech, my right hon. and learned Friend the Member for Surrey, East acknowledged that there were various shades of opinion in our party on the pay policy. Some of us accepted it in part and others not at all. I am sure that my right hon. and learned Friend knows that I am one of those who have always accepted the policy in full. He also accepted the policy, but only grudgingly after a great deal of reflection because he felt that the price being exacted from the British people—not just Parliament and hon. Members—was too high.
I go further. I accept the pay agreement as a remarkable achievement which we had to have if we were to prevent the nation from crashing a year ago. We still face that danger. We could still crash if we took off the brakes. Last July we had to apply the brakes very firmly and determinedly. We only just managed to get acceptance in the country for such an application of the brakes, but I believe that we must continue to keep on the brakes in our pay policy. But, like other hon. Members, I do not want to see a continuation of the rigid control of free collective bargaining that contains so many anomalies throughout the scale of pay negotiation.
My right hon. and learned Friend the Member for Surrey, East spoke of the too high price of the Government's pay policy. He itemised the elements that make it too high a price. He referred to the continuing high and extravagant Government expenditure that was so ably and strongly defended by the hon. Member for Penistone. He is the only Labour Member to whom I can refer, with the exception of the hon. Member for Darlington (Mr. Fletcher), who made a passionate appeal from the grass roots, if I may say so, in Darlington. He explained why he felt that Government expenditure was necessary. I interrupted him when he said that Government expenditure is necessary to sustain employment, to encourage investment and to produce growth. It is not my belief, although I endorse the Government's control of pay policy to produce a reduction in inflation, which I think is of prime importance, that a pouring out of Government expenditure to produce jobs is the proper concomitant of the pay policy. I agree with my right hon. and learned


Friend that the price we are paying—namely extravagant Government expenditure and borrowing—is one that we cannot continue to afford.
I do not think that the Prime Minister differs from me in this regard. I believe that his utterances in Puerto Rico and in the House, and the utterances of the Secretary of State for Industry a week ago on Monday, have all confirmed that the Cabinet now believes that we must encourage industry to earn more and to make higher profits so that it can generate its own wealth, and produce greater wealth for the nation, including more jobs for those who are unemployed. If it produces more wealth for the nation, the Government can continue public spending in areas such as social services or defence.
My right hon. and learned Friend referred to one other aspect that he felt was too high a price for us to pay—namely, the whole host of Left-wing measures that are unnecessary and damaging to our economy and society. This is a contentious point but I have no hesitation in making it. I interrupted the Chancellor to ask whether his figures were right when he said that our gross domestic product had been increasing by 1 per cent. a quarter for the past four quarters. He deduced from that that there had been an increase of 4 per cent. in our gross domestic product. He asked me to read what Lord Watkinson had said over the weekend, Lord Watkinson being the new President of the CBI, and to read the CBI report. I was able to find only one copy of the report available in the Library. I have read what the Chancellor suggested, and that explains my absence from the Chamber.
Lord Watkinson said some remarkable things. We must remember that he is the President of the CBI and that tomorrow he is about to enter into one of the most important meetings of Neddy, a meeting which the Prime Minister has acknowledged will be very important. Over the weekend he said:
The CBI has moved a long way over the past year or so. We have accepted what we would never have accepted before in the way of the need for price control as the price of wage control.
That goes a long way when it comes from someone who speaks primarily to the

private sector of industry. I have much sympathy with his attitude of imaginative co-operation with the Government. He said that he was prepared to accept much more of what he personally disapproves of, and what the CBI disapprove of—namely the Left-wing nationalisation measures, which have not yet returned to the House to be decided upon, the introduction of the National Enterprise Board and sectoral planning agreements. Lord Watkinson said that he would accept all these things. However, he added a rider—provided that the Government acted on their expressed belief in the need for a thriving and profitable private sector.
Lord Watkinson has expressed his views on the new strategy of the CBI. I shall quote what he said about that new strategy, which no doubt he will declare tomorrow. He said that the essence of the CBI approach was
development of a plan for national recovery and discussion of the next phase of wage and price restraint at the earliest possible moment.
I like this new strategy of the CBI to concern itself with national recovery. I say the same thing to the Chancellor, even in his absence. I support such a strategy. I hope that the Chancellor and the Government will do the same.
I shall accept that price. My right hon. and learned Friend the Member for Surrey, East, has spoken about a price, as has Lord Watkinson. However, I too have one qualification to put to the Chancellor on my price. That is that the Chancellor should now stand by his word to allow industry to makes its own growth and to finance its own achievements and its own investment. The Chancellor said that he believes in higher profits. The Prime Minister has this week said the same thing, as has the hon. Member for Penistone. Let the Chancellor be brave enough and big enough to back his words with deeds.

9.37 p.m.

Mr. David Howell: It would be wrong to describe this afternoon's debate as electrifying. Indeed, I am a little mystified why the Government have not thought fit to field a speaker at the end of the debate. I do not know whether it is because no one was too happy about following the Chancellor's earlier jocular and lightweight


contribution or because the Chief Secretary is tired after his efforts in Committee on the Finance Bill, or whether it is just as it was under the Lord North Administration, when they simply gave up trying to defend their policies and stayed silent. I do not know whether there is such an analogy to be drawn. It is a pity that there is to be no Government contribution. There is much explaining to be done as to what the Government are about, and that might have helped to round up the first day of this debate.
I take my cue from my hon. Friend the Member for Horncastle (Mr. Tapsell), who made an interesting speech. I did not agree with every shade of what he said. That will not surprise him. However, he said that he thought that we were moving on to some kind of common ground. In a way, he is right. There is a glimmering of common ground in our debate today. I am not talking about the no-man's-land, the mire of common ground into which we were invited in 1974 and in which we were invited to join in the disastrous social contract which brought this nation to the verge of total disaster through 1974 and 1975. I am talking about that common ground upon which the primacy of monetary and budgetary rectitude are recognised and the central place of profits as the engine of social progress.
That is our common ground, on the Opposition side of the House, and we welcome Labour Members to that common ground, at least in some of the things that are said in the White Paper "The Attack on Inflation". That is the ground upon which this nation's recovery will be built. We welcome what is said in those parts of the White Paper that at least say—I shall come to the matter of action shortly—that the Government's thoughts are turning to a further round of public expenditure cuts and the critical importance of profits.
My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), in his excellent opening speech, pointed to the fact that we are seeing one more step in the education of the Labour Party to realities. There was the first step last year when it was realised that pay restraint, or the lack of it, would lead to loss of jobs—that there was a connection between the two. That

was an important step, and no one denies it. The next step has now been that the Government are talking seriously at last about public expenditure cuts and are right to do so. They can look back over the last two years to the most collosal growth of public spending—50 per cent. in money terms—in any peacetime period in recorded history. There was unprecedented growth. But some realism has broken through and they realise that this must stop. For these small mercies we should be thankful.
Moreover, as my right hon. and learned Friend the Member for Surrey, East rightly said, realism is breaking through when we have sections in a Government White Paper recognising the place of profits in the desperate situation to which real profits on capital have sunk and the vital need to raise them, if possible back to the levels of 10 or 12 years ago, if we are to have the job opportunities and the investment to restore vitality to our country.
But the cuts are only talks. They are only mentioned and talked about in the newspapers. Rather soon the talking will have to stop. I say "rather soon" because it may be assumed that the six months, until the 5 billion dollar standby credit runs out, may give us a lot of elbow room. However, I assure the Financial Secretary, and perhaps he would remind the Chancellor when he has a chance to speak to him, that June rapidly turns into December. Already people are asking what are the conditions—the Puerto Rico requirements—upon which the post-standby credit situation will be established. What will happen in December? The OECD Ministers are asking it. The EEC Commission has given strong hints, United States Treasury officials mentioned it and it received the usual sour reaction from the Chancellor for their pains.
The standby credit is now being drawn on. We have that on the authority of the economics correspondent of the Financial Times last Saturday. My right hon. and learned Friend the Member for Surrey, East did not press the Chancellor on the details of how far it had been drawn down, although he pointed out that it had gone down. Perhaps it would have been wiser if the Chancellor had not given such an aggressive answer when


asked a few weeks ago whether there had been any drawings. Perhaps, on reflection, it would have been better if he had not been quite so impetuous.
The country now is asking what we are going to do next. We shall await a detailed statement from the Government about their intentions in regard to public spending. They should not be embarrassed about this. It is the custom of Labour Governments, about this time of year, to come forward with a Budget, or statement, to correct the mistakes that they made in the April Budget or statement. The Financial Secretary will recollect that it is done. There should be no embarrassment or surprise about the Government making their usual July statement on the next move in the economic situation. We shall expect that, and it would be right to make it.
It is true that for some years the July statements have not been all that educative or instructive. Last year, for instance, we had a statement on 1st July when the Chancellor began by telling us that by the end of the present pay round —that was 12 months ago so I think he meant by the end of this month—inflation would be down to 10 per cent. That was his statement then and, of course, it turned out to be wrong. In the further education of the Labour Party in its handling of these matters—I hope that this will not be taken amiss—in addition to the points made by my hon. and learned Friend the Member for Surrey, East about the realisation of the rôle of profits and so on, a very good start in the next round would be if the Chancellor in particular paid a little more attention to accuracy. This would help the general sentiment in the restoration of confidence both at home and internationally. That would restore some of the loss of credibility attached to the Chancellor's statements.
He said only the other day that he may be found to be wrong again. He is a very bad punter indeed. If we look back over the last 18 months, most of the predictions about inflation have been wrong. First, they were wrong last July when he said that he wanted to bring down the figure to 10 per cent. by the end of July this year. On 6th April he said:
On prices, I believe that we can still achieve our target of under 10 per cent. next

winter."—[Official Report, 6th April 1976; Vol. 909, c. 281.]
I do not remember when the movement of the Chancellor's hand changed the concept so that it became "next winter".
Then, early in June, it slipped again. The right hon. Gentleman then said that
we are unlikely to reach our original target of 10 per cent. by the end of the year. It may be delayed until the spring."—[Official Report, 17th June 1976; Vol. 913, c. 723.]
This may be amusing to the Chancellor, but it is unnerving to many people. It is like a movable feast wrapped up in a mirage in the desert sand. We need more accuracy from the Chancellor. That would be one lesson that should be applied in handling the next stage of Labour Party policy. This is not a minor point. Nothing will go right for the Chancellor; there will always be something coming along to upset his predictions until the whole policy is correct and until the Government ceases to rely on this or that component part alone.

Dr. Jeremy Bray: The hon. Gentleman is pursuing an interesting argument. But is he suggesting that if the Government adopt a particular package of measures that reduces the economy to a particular prediction? If so, he is talking rubbish.

Mr. Howell: I am not saying that, and if he had listened more closely to my speech the hon. Member would know what I was suggesting.
In recognising that public expenditure must now be cut substantially, one shibboleth in the Labour Party has been thrown overboard, and that certainly is an advance on what went before.
The next one to go overboard is the Labour Party's concern for income equality and redistribution. Labour's natural desire in this context found its highest expression in the days of 1974, when some of the Chancellor's speeches showed that he wanted to be beastly to the higher-paid people and to adopt a general atmosphere of hostility towards those on higher incomes. That is the next attitude that will have to change. I do not know how long it will take to get to that next stage. There will be problems for the Labour Party because it is becoming difficult to keep track of whom they are trying to hurt.
Only a few weeks ago the Labour Party were baying after those who enjoyed fringe benefits. Those were the evil people of the hour. Everybody in the Labour Party was determined that those benefits should be wiped out in the interests of equality, fairness, sacrifice, and all the rest of it. But that was a few weeks ago. Therefore, it is slightly surprising that only yesterday the leader of the miners, Mr. Gormley, for whom I have a great respect, told the miners conference that they were well on their way to an improved standard of living that would come from improved productivity bonuses and from the increased value of fringe benefits such as concessionary coal, subsidised transport and other things.
That is a remarkable turn-round. It is a move towards realism. Mr. Gormley should have visited some of the sittings of the Finance Bill upstairs in Committee. He would then have realised that he was on the right track, whereas a few weeks ago he would most definitely have been on the wrong track.

Mr. Dan Jones: There is such a shortage of miners that if any Members of the Opposition require those fringe benefits, Joe Gormley will make room for them.

Mr. Howell: That does not sound an unhealthy attitude.
In Committee the Government believed that anyone earning over £100 a week belonged to the capitalist or management classes, and should be accorded special treatment in respect of all their untaxed benefits. The Government learned to their surprise that almost 25 per cent. of the work force came into that category. The basic take-home pay, other emoluments, expenses and reimbursable expenses, put almost 25 per cent. of the work force into or over the £100 a week level. This may interest some hon. Members who have not been able to follow the proceedings in Committee in detail. However, in Committee the Government gradually discovered to their horror during the proceedings on the Finance Bill that what they believed to be the enemies of the Labour Party, and to be chased after, were vast numbers of people who traditionally used to support the Labour Party. I am not sure whether they still do.
One example is that of the railway workers. Instead of hitting at a handful of top-hatted directors, the Government discovered that they were up against 45,000 members of the National Union of Railwaymen, and tens of thousands of airline employees and bank employees, all of whom were threatened by the original crusade against fringe benefits. That leaves out of account the legions of hard-working salesmen who use their cars all round the country. They earn modest incomes of between £80 and £100 a week. All those people would be severely penalised by these provisions.
It is no wonder that the stuffing has been knocked out of the Finance Bill, as we shall learn on Report. Why has that happened? It turned out that what was proposed was not a support for the sacrifices of the workers but an attack on the workers. We shall find that that is so if we look closely at the group of people that I mentioned.
I am referring to those who earn between £4,000 and £6,500 a year. A few years back it might have been thought that those kinds of salaries were earned by senior management—the people to whom the Government wanted to be nasty. That is not so today. If we consider people in that group today, we find that we are referring to skilled workers, higher paid workers, and those who are supposed to benefit under the proposed deal in the White Paper "The Attack on Inflation".
I have some figures which relate to a man earning £100 a week. He is not a fat manager living an indolent life. He is a hard-working man who earns £100 a week. He is married, with two children. When he receives the benefit of the deal, and the extra pay, and has deducted from that the new rate of national insurance contributions—which will increase from £3·79 to £5·46 a week—if he has two children and his wife is not at work, he will be 1p per week or 52p a year better off. That is all that he will make out of the deal in money terms.
If we add the 15 per cent. inflation which we expect—only the most wild optimist thinks that the inflation figure will come down to 10 per cent.—we find that we are dealing with the most colossal fall in living standards for that kind of person—yet again. Last year and the year before these people took a 10 per


cent. to 15 per cent. cut in living standards. Those people do not need to be lectured about sacrifices. They have made the sacrifices on substantial terms. They must agonise over the breakfast table to meet the monthly mortgage payments. They must cut their living standards on every side. They are the people who have been driven to more and more worry as they wonder how to meet the monthly bills. There is no mention in the White Paper, from the first word to the last, of these people, the management and skilled workers.
That leads us to the next lesson for the Labour Party. It will somehow have to engineer, if it is still in office, a major shift in the tax system to lift the burden of income tax from these people, because this situation cannot go on. It is an impossible situation in which they have placed middle management—and not merely middle management but tens of thousands of skilled and semi-skilled workers who are supposed to be part of the useful people whom the previous Prime Minister was so fond of praising and who now find they are being hit hard by the working class war waged by the Labour Government.

Mr. Dan Jones: The hon. Member is pushing at an open door.

Mr. Howell: I am glad to hear it. Certainly these people are pushing at an open door—but it will no longer be marked "Labour Party".
The next lesson follows from the previous one—that, with all this fine talk of social contracts, it must by now be understood by this Government after two years that one cannot have a social contract unless it embraces the whole community. That, after all, is what Jean-Jacques Rousseau laid down clearly. The social contract should embrace everyone, not just the few, not just the friends of the Labour Party, but the entire community. Millions of people cannot just be lost in Government files because they do not fit into the categories of affiliation to the TUC. One cannot just say that they do not matter, that the Government will not write any appendices to a White Paper for them, that they are not part of the deal. They must be involved in any development of this kind. That is another lesson which has to be learned.
There are many other lessons which lie ahead, but I have time to outline only one more. That concerns the Price Code. We shall be debating that at much greater length tomorrow. I do not know whether anyone—even the Secretary of State herself—now has time to read through all the details of the Price Code. It is fiendishly complicated and even begins to make the Finance Bill look a little simple—although that perhaps is going a shade too far. There is no time to quote the details of the stock appreciation relief under the Price Code as compared with the stock appreciation relief under the Finance Bill, but it is strange that we let this vast and detailed legislation go rolling through in the form of a code and that it is not properly debated as a Finance Bill should be.
The Price Code should be properly debated. I suggest that it should be put to our Finance Bill Standing Committee. They might do a very good job on it, and with the help of the Financial Secretary, it would probably emerge totally emasculated, like a paper hoop with the centre blown out of it. So it should, because this sort of detailed Price Code has no further place in our affairs. I am sorry that we have had to hang on to the details which the Secretary of State claims—no doubt she will elaborate on this tomorrow—are necessary. I do not believe that they are necessary. The time has come to do away with the detailed form of the price code.
What is the Government's response to the real needs of this country, which has to begin painfully over the years to catch up with our neighbours again? I think that we can do it, although I suspect that it will take anything up to ten years. The two responses that they have offered are, first, to leak that there will have to be cuts, as they have leaked so many other things. This is not a Government at all but a sieve. The second response is officially to produce this White Paper.
As I have said, from cover to cover there is no mention in this White Paper of the plight of management and skilled men. There is a lot of talk about how resources are to be channelled into this industry or that but no talk about the people who are supposed to do the channelling. There is no word about the status of or better economic independence


for the workers of this country. There is nothing about greater ownership opportunities for working people, giving them the kind of fuller life that their Continental counterparts have. There is no concern at all for the still rising tax burden, which workers at all wage and salary levels deeply resent.
We are told that public spending cuts will lose jobs. That has been the constant

cry of hon. Members on the Government side. We say that nothing will reverse the job decline until there is a return of confidence in private industry, and we say that that will not come until the government changes its policies and its Chancellor of the Exchequer.

It being Ten o'clock, the debate stood adjourned.

Debate to be resumed tomorrow.

BRITISH GAS CORPORATION (PRICES)

10.1 p.m.

The Under-Secretary of State for Energy (Mr. Gordon Oakes): I beg to move,
That the Compensation for Limitation of Prices (British Gas Corporation) Order 1976, a draft of which was laid before this House on 10th June, be approved.
This Order specifies the amount which the Secretary of State for Energy proposes to pay to the British Gas Corporation for loss due to price restraint in the financial year 1974–75. It has been laid in accordance with the provisions of the Statutory Corporations (Financial Provisions) Act 1975, which hon. Members will know is the successor to the 1974 Act of the same name. The 1975 Act does not set a limit to compensation other than to stipulate that it shall not exceed the deficit on the revenue account of the corporation concerned. It also provides for compensation to be extended from 1974–75 and 1975–76 to 1976–77 by Treasury Order.
The amount which the Government propose to pay to the British Gas Corporation in respect of 1974–75 is less than the deficit on revenue account shown in the annual report and accounts. This is, I think, a unique occurrence in these compensation Orders, and merits a few words of explanation. The British Gas 1974–75 accounts included a provision against settlement of outstanding claims by Southern Basin Gas Producers. This provision was agreed with the auditors, who are appointed by the Secretary of State. It was particularly difficult to be precise about the quantum or the timing of the payments which would follow settlement of outstanding issues.
An Order was therefore drafted to pay compensation based on the deficit shown in the accounts, with an arrangement that British Gas would repay to the Government any difference between the provision and the settlement reached if it turned out to be less.
In the event, negotiations between British Gas and the producers moved faster than expected, and it appeared more sensible, and constitutionally more appropriate, to delay the laying of the

Order until the sum of the settlements was fully known.
I should like to say to the House that the extent of the back payments for the period up to 31st March 1975 is only one element, and taken in the round the outcome of the settlement is no less favourable to the producers than was expected when the provision was made in the British Gas accounts last year. It is merely that the incidence of payments is different from that anticipated.
The 1975 Act and the sum payable under this Order are basically the legacies of policies begun by the previous Administration, which prevented industries from increasing prices in order to meet their costs. It was not possible to reverse these policies overnight. British Gas increased their prices for industrial and commercial consumers in September 1974, but acceded to a request by the Government to defer increasing their prices to domestic consumers until January 1975. The deficit which we are discussing arises directly from this situation, and we are satisfied that it could in no practicable way have been avoided.
In November 1974 my right hon. Friend the Chancellor announced the Government's intention of phasing out subsidies to the nationalised industries as soon as possible, and during the Second Reading debate on the 1975 Act it was made clear that the Government intended to complete the process by the end of 1975–76 so that no payments would be made in relation to 1976–77. Consequently, the contingency provision in the Act for 1976–77 is not expected to be needed. The British Gas Corporation is expected to declare a modest surplus for 1975–76, so that 1974–75 is likely to be the last year in which subsidies in respect of limitation of prices will be made under the 1975 Act.
Perhaps I should add that the Government fully appreciate the difficulties which the price rises, which have been required to return British Gas to a surplus-making position, have involved for some of the larger domestic users. Amongst these, those least able to pay are protected in some measure by social security. We shall continue to do what we can in this direction.
I hope that I have given enough background to enable informed discussion of the Order to take place, and I commend it to the House.

10.6 p.m.

Mr. T. H. H. Skeet: The purpose of the Order, as the Under-Secretary of State said, is to compensate the British Gas Council for losses, though not loss of profit, sustained in complying with the Government's demand for price restraint in the year 1974–75. There is, however, a lack of consistency in the treatment of the deficits of the nationalised corporations charged with abiding by price restraint, and that is very significant. British Rail and the National Coal Board do not have to show that their deficits are due to price restraint. The National Coal Board lies within the European Coal and Steel Community and thus falls outside the operation of the normal price control rules.
It is otherwise, however, for gas and electricity under the Statutory Corporations (Financial Provisions) Act 1974. The Under-Secretary of State explained the discrepancy between the figure which appeared in the accounts and the figure which now appears in the Order. Part of the British Gas Corporation's deficit was due to price restraint, and this was initially underestimated. In the accounts the figure was thought to be £42·3 million and subsequently in the Order the figure turned out to be £28·9 million. This is an over-provision of 45 per cent. on the actual deficit, and represents a unique example in contingency planning. Perhaps the Minister will elaborate a little on how that occurred.
It is apparent from what the Minister said that a policy of charging economic prices for the products and services of nationalised corporations is to be established. At least that is the trend, but it does not seem to apply to gas, because the BGC is not permitted to charge the free market price. Accordingly, the taxpayer has been called upon to foot a substantial bill since 1971. The compensation for price restraint from 1971 to 1974–75 for BGC totals £104 million, which is comparable to the electricity generating and area boards' total of £572 million.
Price restraint may be effected under the counter-inflation policy through direct

subsidy to the BGC or by diminishing the corporation's profitability, and that is the point I wish to emphasise. Either approach represents a subsidy to the consumer in general, with disproportionate benefit accruing to the wealthy and little relief for the poor.
In its Fourth Report entitled "Gas and Electricity Prices", House of Commons Paper 353, the Select Committee on Nationalised Industries also takes a narrow view, but the House should note the comment which appeared in the Financial Times editorial of 2nd July 1976, which is as follows:
The arguments against cheap gas are exactly the same as the argument against food subsidies. It costs less to help the poor than to cheapen what everybody buys.
That is self-evident.
There are several courses open to the Government. First, they could keep gas prices below their economic band, which is what they appear to be doing. The consequences of that are significant. It would encourage over-production of a particular fuel at the expense of others in the energy market, reminiscent of the prolonged problems of the United States and with the concept of premium use of gas considerably shaded. It would distort the fuel market by rendering electricity increasingly uncompetitive in the domestic market, with severe repercussions on the coal industry which is primarily dependent upon it.
The ingredients that enter into the costs of gas, electricity and coal are different. Coal is derived from a higher labour-intensive industry, and its costs have to be added to those of the generating and area boards. The British Gas Corporation purchases its raw materials from the oil companies well below the market value. From the southern section of the North Sea it works out at 1·5p per therm. Gas prices relative to those of oil are also significant. Gasoil for domestic heating works out at 18·5p per therm and natural gas at 14p to 15p per therm. The difference in price between the two is equivalent to 6·6 per cent. per gallon on gasoil. Gasoil for industry is between 14·9p and 15·5p per therm. Natural gas for industry is 8·5p to 12p per therm on the interruptable supply contract. The difference works out at an average of 8·2p per gallon. A further consequence is that the continuation of cheap gas could affect the flexibility


of refining operations in the United Kingdom.
I offer in aid a small exerpt from the July 1976 issue of Petroleum Economist from which the Government could learn a lesson. It says:
Since Dutch supplies have tended to be at prices appreciably below cif price parity with oil, Groningen has arguably done Western Europe a disservice—as regulation has in the USA—by encouraging dependence on a premium fuel at discounted price.
The Government should realise that United Kingdom prices of gas are higher than those of many member States of the EEC. The domestic prices per therm are: the Federal Republic 19·8p with VAT at 11 per cent.; Belgium 19·3p with 6 per cent. VAT; France 20p with 17·6 per cent. VAT; Italy 12·9p with 6 per cent. VAT; the Netherlands 12·8p with 4 per cent. VAT; and the United Kingdom 13·7p with zero rate VAT.
The second course which is open to the Government is to tax gas to bring it into line with other fuels. I heard the hon. Member for Bassetlaw (Mr. Ashton) ask "Why not tax it?" That course is not recommended. Fuels are not subject to VAT in the United Kingdom as they are on the Continent.
The third course is to allow gas prices to rise in response to market forces without general subsidy, the corporation being called upon to pay corporation tax on its surpluses. That would enable the corporation to increase its return on net assets after depreciation and interest charges. The 1974–75 position was totally unsatisfactory and returned only 5·5 per cent. after depreciation but before interest. That is borne out by an observation by the Secretary of State on 29th January 1976, as reported at column 313 of Hansard.
Further, I am not sure that the corporation's accounts have been adjusted for inflation. The corporation can provide well over 50 per cent. of its capital requirements from its own resources without the necessity for much additional borrowing. By March this year it had borrowed £2·3 billion against its statutory borrowing ceiling of £2·7 billion.
The corporation could expand its research into synthetic natural gas processes to provide revenue for licensing and provide for the necessary follow-on

after the year 2000, when North Sea gas resources may reach exhaustion. Finally —and this is one of the most significant points—it could devise ways and means to aid those in the domestic market who may be embarrassed by realistic prices.
Perhaps the Under-Secretary can reconcile two observations in two different documents. Paragraph 26 of the White Paper "The Attack on Inflation, The Second Year", Cmnd. 6507, said.
The subsidies to the nationalised industries needed for price restraint have been phased out.
But in the Fourth Report from the Select Committee on Nationalised Industries, Session 1975–76, on gas and electricity prices, there is the following interesting observation in paragraph 177:
The other major factor in this debate must be the position of the domestic gas consumer. At a time when the prices of all forms of heating have risen so markedly, we would place overwhelming weight on the harmful social effects of deliberately closing or diminishing by fiscal or other means the price differential of the one relatively cheap fuel.
What do the Government propose to do? Does the Minister propose to hold down the prices of gas well below their market level or, as would appear from the White Paper, to let them rise to a market level which is probably in parity with the other fuels?

10.17 p.m.

Mr. Arthur Palmer: I congratulate the hon. Member for Bedford (Mr. Skeet) on his elevation, even if late at night, to the Opposition Front Bench.
It is no good the hon. Gentleman becoming so indignant about the subsidisation of energy prices because his own former Government introduced it. It was the most remarkable contribution that the right hon. Member for Knutsford (Mr. Davies) made to our affairs. He came from that citadel of capitalism, the CBI, and promptly set out to subsidise the nationalised industries.
I share one thing with the hon. Member for Oswestry (Mr. Biffen). We both opposed that policy. I think that such opposition is now generally-accepted wisdom, but both parties have departed from wisdom in the past, so it is no good our abusing each other. We must all try to look at the matter realistically from now on.
My own industry, electricity supply, never asked for subsidies. They have been much resented by the boards, because they often lead to sloppy management. They have been opposed by all the unions in the industry. Once a publicly-owned industry takes to receiving subsidies, realistic collective bargaining on salaries and wages usually flies out of the window. At any rate, that has been our experience.
I want to make a few comments about the absurdity of present gas pricing. Here we have a premium fuel which can be used in many ways. Apart from being used for straight burning, it is a feed stock for the chemical industry. The question of the rate at which it should be used up is obviously of very great importance in itself. It is now taken for granted that the gas industry cannot supply all its would-be customers, certainly not until the Frigg field comes along. It is also unable to charge the normal market price but is to be subsidised to the tune of £20 million. That is an absurd situation.
In addition, it is now to have a right which I am sure the electricity supply industry would dearly love to have. Under the Energy Bill, to which we gave a Second Reading recently, which is now in Standing Committee, the gas industry does not have to supply all its customers if it does not pay it to do so. The electricity supply industry, however, is still under a statutory obligation to supply all its customers, whether or not those customers are economically useful.
I am well aware that this is not a simple but an extremely complex probblem but it is one which I would urge my hon. Friend the Under-Secretary to take seriously because I hope he will not mind my saying that his reply to my intervention a week or so back irritated me. On the Second Reading of the Energy Bill referring to gas pricing I said:
Surely the Minister accepts that this is a point which is open to considerable argument".
My hon. Friend brushed aside my objection and said:
This concerns the counter-inflation policy and the effect that any unnatural increase in the price of fuel would have on that. There are no current plans in the Department to

institute a special gas tax."—[Official Report, 15th June 1976; vol. 913, c. 408.]
I had never suggested a special gas tax. I merely suggested there was a very real problem.
Let us turn to evidence given in public recently to the Select Committee on Science and Technology which I am perfectly in order in quoting. I was in the Chair at this Energy Sub-Committee session. The Committee was questioning in public high officials in the Department, including Mr. T. P. Jones, the Deputy Secretary. The advantage of having a Select Committee is that a great deal comes out into the open and does not have to be filtered or read through the Minister's mouth. Mr. Jones said in answer to a question of mine:
The Chairman of the Central Electricity Generating Board has pressed hard for a tax on gas. There is certainly a problem here which we are looking at
The CEGB Chairman certainly has not been silent on this subject. This was the Deputy Secretary, speaking of the Department. He went on:
and which I think we have got to look at further.
Therefore, when some of us raise this a very serious issue the question of the related pricing of fuels in this country, we are entitled to be taken seriously.
Let us look at the Department of Energy Statistical Bulletin Energy Returns, May 1976. It states:
Total natural gas growth continues. Total gas sent out in the four months January to April 1976 was nearly 8½ per cent. higher than in the corresponding period last year. Total electricity supply in the first three months of 1976 was 1·3 per cent. lower than in the corresponding period of 1975. The corresponding decline in primary fuel used for generation during the period was 2 per cent.
Surely this situation must cause the Ministry some concern? Whilst I am not going to press too hard tonight, because there is not time, I hope the House can have some serious future discussion on the subject.
May I commend as reading to the Department, therefore, a most useful paper presented to the Institution of Mechanical Engineers by Sir William Hawthorne, the chairman of one of the many advisory committees to the Department, in December last year. The paper is entitled "Energy: a renewed challenge to engineers". This eminent


engineer, with great experience in these matters, had this to say:
Modified thermal pricing has not yet been fully accepted by governments or public opinion. We still tend to cling to the concept that energy should be sold at the average cost of production and supply, modified perhaps to allow for the effects of peaks and extraordinary marginal costs. It is evidently not sufficiently realised that the pricing of a fuel below its thermal parity with the comparable fraction of oil, which is the dominant fuel offering the widest range of substitutions with other fuels, leads to a waste of the underpriced fuel, hence to a general waste of energy, a higher demand for all fuels and a pressure on world prices.

Mr. Skeet: Is the hon. Gentleman suggesting that fuel prices should be arranged on 35-second fuel oil, which is commonly used?

Mr. Palmer: I am not making any suggestion. I am saying merely that here is an eminent gentleman, one of the principal outside advisers to the Department, who is arguing that we need a more intelligent system for the pricing of energy than the chance methods currently used.
If, for the moment, we cannot do very much at source, I should like to know when it is hoped in the Department to get back to the kind of discipline which was applied to the nationalised industries, especially gas and electricity, in the late 1950s and the 1960s, largely as a result of the recommendation of the Select Committee on Nationalised Industries, by which there was laid down a rate of return on net capital assets which was decided by the Ministry. It was varied from time to time. Historically, it was always the gas industry which was given the benefit because the gas industry then relied on town gas derived from coal and had not then switched to the highly remunerative natural gas. So there was always a lower rate of return fixed by the Ministry for the gas industry and a higher rate fixed for the electricity supply industry. It was a rough and ready discipline, but it was a workable financial discipline.
All that was thrown out by the action of the Conservative Government. But once we get away from subsidisation, which is the very proper aim of the Department now, has the Secretary of State in mind some new system of financial discipline for the nationalised industries? In that connection, it might be

as well for the Department to look back at the system of fixing a balanced rate of return on net capital assets. The system worked well at the time. I regard the late 1950s and the 1960s as the period when probably the nationalised fuel industries were working as well as they have ever done.

10.29 p.m.

Mr. Geoffrey Dodsworth: In a most beguiling and disarming way, the Minister sought to explain that the benefit of this Order was akin to winning the football pools. From the accounts of the British Gas Corporation last year, we had thought that we should be asked to provide £42,309,475 —a figure remarkable for its precision and accuracy. We are now told that we are fortunate and that the sum is to be only £28,949,333. I understand the Minister to say that it had been possible for certain negotiations to be concluded and that as a result we should have the benefit of the lower figure.
By profession, I am a chartered accountant and, as a result, I am a suspicious person. I thought that I should like to examine the accounts of the British Gas Corporation in more detail. I propose to read the relevant parts of the accounts prepared for last year 1974–75, and to indicate the absolute certainty of the deficit recorded and the references made to it.
On page 41, paragraph 9, which refers to the notes on the accounts, says:
The Department of Energy has written to the Corporation stating that in accordance with Clause 1 of the Statutory Corporations (Financial Provision) Bill recently presented to Parliament, provided the Bill is enacted in essentially it present form, an Order will be laid before Parliament in due course to seek its approval to pay compensation to the British Gas Corporation in respect of the loss of £42,309,475 incurred on its operations during the year to 31st March 1975, arising out of price restraint. This amount has been brought into the profit and loss account and is included in current assets. The text of the letter is set out on page 52.
I fear that, in the interests of a proper record, I must refer to the specific letter because it is from the Department of Energy and is addressed to the Chairman of the British Gas Corporation and signed by an Assistant Secretary of the Department of Energy. I shall read an extract because it indicates yet again that the figures that were provided were done so with a degree of accuracy and certainty,


and if such accuracy and certainty existed, there has either been gross mismanagement subsequently or the accounts seem to have been misleading.
The letter reads:
The Secretary of State understands that the deficit in your Corporation's Revenue Account for the year 1974/75 will be £42,309,475 and that this deficit is equal to or less than the loss which has been incurred by the Corporation in consequence of their compliance with the nationa 1 policy relating to limitation on prices.
So we have a note in the accounts which refers to a letter from the Department of Energy which is absolutely categorical.
There is one other matter that we should properly look at in defence of the Minister. After all, he did indicate that the members of the corporation were aware of this situation and were being cautious, careful people. The notes in the accounts on this subject would not lead anyone to think that there was any doubt at all.
Under the heading "Contingent liabilities", it says:
Provision has been made in the accounts for the actual and estimated costs of gas purchased. Whilst the Corporation believes that such estimates are reasonable there exists at 31st March 1975 a contingent liability which might he substantial in respect of further costs arising from the interpretation of supply agreements which is the subject of a dispute between the Corporation and its suppliers.
Such a note implies that there might be a need for further provision for an increase in the deficit rather than a reduction, and therefore it seems that this rather glossy publication, this guide to the affairs of the British Gas Corporation, is a rather misleading document.
There is an even more serious factor—the report of the auditors. After all, we employed professional, highly-skilled people, one of the top five auditing firms in the world—Price Waterhouse & Company—who signed a certificate on 2nd July 1975 which said:
In our opinion the accounts and notes set out on pages 32 to 47 (which include compensation for price restraint of £42·3 million still subject to enactment of the Statutory Corporations (Financial Provisions) Bill and to the approval of the amount by Parliament)
—and we are approving it exactly a year later—
give a true and fair view of the state of affairs at 31st March 1975 and of the results for the year then ended of the Corporation and

of the Group consisting of the Corporation, its subsidiaries and interests in associated companies, and comply with the requirements of the Gas Act 1972, and the Directions received by the Corporation from the Secretary of State.
We have accounts that are sharply defined and clearly categorised, a letter from the Department of Energy and the auditors' report. We have to ask whether, at that time, the chairman of the corporation knew of these doubts and uncertainties and, if so, why he allowed such a set of accounts to be presented as a record of the year ending 31st March 1975. If he did not know, why did he not know?
This is an immense change. We are talking not of a book-keeping error but of a change from £28 million to £42 million, yet there is no clue to this situation in the accounts.
The Minister has been less than fair to the House in his presentation of the facts. I seek a much more satisfactory explanation.

10.35 p.m.

Mr. Oakes: We have had an interesting debate. I congratulate the hon. Member for Bedford (Mr. Skeet) on his elevation to the Opposition Front Bench for the debate. We seem to be spending all our time together in Committee lately. The hon. Gentleman has considerable expertise in energy matters, but I have to disagree with some of the results of his deployment of that expertise.
The Order is not the brain child of this Government; it results from the price restraint policy of the last Conservative Government and relates to the years 1974 and 1975. Hon. Members opposite did not take up my remark that this is likely to be the last Order that we shall bring before the House resulting from that policy.
The hon. Member for Bedford said that gas was being sold at below the economic and market value, and he quoted continental comparisons. Natural gas is now saving our balance of payments more than £1,000 million a year. To do that, it has had to take some markets from oil. It could not have done so without being able to compete in terms of price, convenience, or both.
I praise the gas industry for what it has done for this country and the balance


of payments and also for its extraordinary efficiency since 1970.
The Opposition might have said that the Order resulted not from their price restraint policies but from the inefficiency of a nationalised industry.
Let us look at the record of British Gas. During the period of price restraint since 1970, the corporation has more than doubled the volume of gas supplied to customers and at the same time has reduced its work force by 15 per cent. In 1975–76, having been permitted by the Price Code to earn 2 per cent. on turnover, the corporation expects, subject to audit, to declare a modest surplus of about £25 million. Is that the record of an inefficient industry?
This Order, therefore, clearly and manifestly results from the policy of the previous Administration, and it is the last such Order we shall have to bring before the House. I am convinced of that.
Many interesting comments have been made in this debate. I am somewhat puzzled by the remarks of the hon. Member for Bedford, because this is not the first time that he has raised the question of the price of gas. He did so early one morning, about a fortnight ago, when he chastised me about another Order. I was not being awkward, because I had expected that Order to go through on the nod. The hon. Member criticised the price of gas very strongly on that occasion. Whether he was implying that there should be a tax on gas, I do not know. He is now sitting on the Opposition Front Bench and repeating many of the things that he said a fortnight ago about the unrealistic price of gas.
My hon. Friend the Member for Bristol North-East (Mr. Palmer) and I may find ourselves in disagreement here, but I would certainly never brush him aside. I have the greatest respect and regard for his expertise over the past 12 years on the question of energy.
In a period of counter-inflation, and at a time when gas is the primary fuel supplied to many households in this country, it seems to be a very difficult proposition that one should artificially raise the price of that fuel in any way—especially at a time when Government policy is to keep prices down and to have a wage agreement with the trade unions. I know that there are difficulties

in relation to the electricity industry, and we are well aware of them. It is true that the official in my Department said, in replying to the Select Committee, that we were looking at this. Of course we are looking at it. But I repeat what I said a fortnight ago—there are no current plans in my Department to introduce a tax on gas or to raise artificially the price of gas. It would be a foolish thing to do to a very efficient industry in this country at a time of counter-inflation policy.
In the first instance, such a tax would have an effect on the ordinary consumer, and particularly the consumer who is in the lower income group. Also, it would have a very adverse effect on industry. If we introduced such a tax it would not benefit the industry. One could understand the argument that prices should be increased to make greater resources available for investment to explore new fields, but a tax on gas would not do that. Artificially raised prices would have very adverse effects socially.

Mr. Palmer: I entirely agree with my hon. Friend about the social effects of pushing up the price of any source of energy, but I hope that he will not overlook the considerable number of poor people who live in all-electric flats. There are a considerable number in my constituency, and I am sure that other hon. Members are in the same position. The electricity supply industry is being forced all the time to put up the price of electricity.

Mr. Oakes: I have the greatest sympathy with my hon. Friend about people who are "locked into" the electricity supply in that way. But an artificial increase in the price of gas would not help the person who is on electricity. I have tried, under severe criticism from the nationalised boards concerned, to help by various ways the people who are locked in in this way. One of my ministerial duties concerns energy conservation, insulation, and so on, so that councils and individuals can help themselves to reduce the cost of fuel. I have sympathy for people who are compelled to go all-electric and bear a heavier fuel cost by a council that finds that the cost of the electric appliance is cheap.
However, we are talking about gas. My hon. Friend has a valid argument


when he refers to the depletion of our gas resources. The gas industry, however, is convinced that the proven and possible reserves of gas will take us a considerable distance into the future. In our present economic plight, can we ignore those proven resources? It might be better if we had all sorts of alternative resources to turn to, but we do not have them. My hon. Friend the Minister of State for Energy said in the House recently that it was God's oil. It is also God's gas, and in our hour of need God has been very good to this country in respect of both.
An artificial increase in the price of gas would have an adverse effect for our incomes and counter-inflation policies. We are considering the whole question of depletion of fuel supplies, but there are no current plans in my Department for any artificial increase in the price of gas, or for any tax on gas.
I should like to take this opportunity of praising the gas industry for the miracle that it performed in converting the country from town gas to natural gas. It was one of the smoothest operations of the kind in the world. Of course, there were accidents and complaints. Every hon. Member received letters from aggrieved consumers, but we put the number of such complaints at one in 1,000. The remaining 999 consumers were perfectly happy with the fuel being supplied to them.
Perhaps I should deal here with the difference between the £42 million of the auditors' figures and the £29 million that we are asking for in the Order

Mr. Peter Hardy: The Minister is right to spell out the position with gas being extracted from the southern basin of the North Sea and the implications of gas pricing, but will he make it clear that when the gas undertakings begin to take gas from areas other than the southern basin it may be more expensive than current reserves?

Mr. Oakes: That may well be. I would not dispute that. However, we are concerned with the Order now before us.
My hon. Friend has led me in to what I was about to say about the £42 million. The hon. Member for Hertfordshire,

South-West (Mr. Dodsworth) asks how we can trust the auditors or the nationalised industries when originally they asked for £42 million and in the outcome they need only £29 million. That is relevant to what my hon. Friend has said. In future the cost may be greater. The Order deals with 1974–1975, so the only relevant contract with which we are concerned is the southern basin contract.
I find it astonishing that there should be complaint when the Government—this could apply to a Labour or a Conservative Government—tell the House that £42 million in subsidies was originally thought necessary, but that as a result of a sensible arrangement arrived at between the suppliers and the gas board, to the benefit of both, only £29 million of taxpayers' money is now required. Is anyone complaining that the taxpayer is saved £13 million? I believe that I am presenting a triumph to the House—namely, a saving of £13 million of taxpayers' money. I find it difficult to accept criticism when the original Order—it was introduced by the Conservative Government, not by us—was £42 million and now I ask for only £29 million.

Mr. Dodsworth: If we follow the hon. Gentleman's argument to its logical conclusion, next year he could present the House with a disaster and say that this year's surplus has become a deficit. The notes to the accounts provide that a continuing liability may be substantial in respect of further costs. That implies that there will be a further cost to provide for any reduction of the required demand. On that basis I regard the accounts as misleading.

Mr. Oakes: I suppose that one can never project oneself entirely into the future. However, I am hopeful that this is the last Order for which the Government will ever have to ask. For this year there is a modest surplus of about £25 million. I cannot make a projection for next year, as the hon. Gentleman requests. However, with an industry as efficient as British Gas, which has made a surplus even under the adverse conditions of this year, it is unlikely, given our residue and reserve powers, that the 1975 Act will have to be invoked, despite the fact that prices in the northern basin could be dearer than prices in the southern basin.
As the House knows, in the autumn of this year the Gas Board is making an application for a modest increase in prices. It is making that application of its own volition. I find it difficult to accept the criticism of Opposition Members, who are so preoccupied with public expenditure, when the Government seek to eliminate the need for the taxpayer to pay the bills of the nationalised industries. After all, this was their policy. This is the back end of their policy. Although it has been necessary for ordinary people to pay for some of the nationalised industries' bills, those industries, to use the words of some Opposition Members, are now standing on their own feet.
I believe that the Government's policy is right. I hope that this is the last Order that we shall bring under the policy of the previous Government. It is an Order for £29 million and not £42 million—for a considerably smaller sum than was originally envisaged. I think that it is a tribute to British Gas and to their negotiations with the oil companies, and that it is a benefit to the British taxpayer.
It is probably the last Order that will ever be introduced on behalf of British Gas. I hope that the House will confirm and approve this last Order resulting from the disastrous policy of the previous Administration.

10.56 p.m.

Mr. John Biffen: I had rather hoped that the debate could be so structured that the Under-Secretary of State could have begged leave to reply after I had spoken.

Mr. Oakes: On a point of order, Mr. Deputy Speaker. I am very sorry the hon. Gentleman said that. I had thought I was the last speaker. I do not need the leave of the House to speak again, because this is my motion. I am sorry if I have offended the hon. Gentleman, but I did look around the Chamber, and nobody rose to speak.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine): Perhaps I may help the hon. Member for Oswestry (Mr. Biffen). I did see that both Dispatch Boxes were occupied, and I took my choice of the Minister.

Mr. Biffen: I quite understand your sense of preference, Mr. Deputy Speaker and it is the last thing that I would want to challenge. I do not want the Under-Secretary to think that I was in any way criticising him. I was merely going to say that I regret that he will not be able to answer the few remarks that I shall make.
This is, in a sense, a historic occasion, even though it is not exactly "standing room only" in the House. As the Minister said, this Order is almost certainly the last of its kind that will be presented to the House, certainly in respect of gas, and we hope that is true of the other energy industries as well. It marks the phasing out of the price restraint policy. That is welcome.
I am not attempting to manufacture discord between the two sides of the House. I am not disposed to engage in any inquest as to how we came to arrive at this policy. I would only say that the fact that this marks the end of the price restraint policy means that there is now more of a possibility of the nationalised industries operating in a somewhat different climate, and adopting a different relationship between their economic and social responsibilities, than would have been the case 12 months, 18 months or two years ago. Personally, I welcome that. I think that it is to the benefit of the climate within which those industries have to operate, and that it will also enable us to concentrate our minds much more upon other means of providing social and welfare benefits than using the nationalised industries to that end.
In that context, I very much hope that the representations that have been made by the Gas Corporation, among others, in respect of the impact upon their cash flow, where the powers of disconnection are to be removed, will be taken account of by the Department. However, as the Under-Secretary will be the first to concede, this is not really in the Order that is before the House this evening.
My hon. Friend the Member for Bedford (Mr. Skeet) did the House a great service by using this debate as an opportunity to raise the wider issues of what the proper policies are for the gas industry, given its current situation. There is no doubt that were a really active and


pungent caricaturist or satirist looking at the whole machinery of government today he would not draw a veil at February 1974 and suppose that everything had been surprisingly different before that date. What he would observe is that the one fuel that manages to get into the red triangle scheme is gas.
The public expect that a degree of price stability will be conferred on this fuel, although we know that there are serious people in the apparatus of government who question whether this fuel, far from enjoying stability, should not be subject to a tax. I think that the advocacy of this has come from within the Department of Energy. I was delighted when my hon. Friend the Member for Bedford made it clear that a tax on gas is not acceptable to the Opposition.
Now that we are moving back to a more economic climate and a more economic framework for the nationalised industries, it is important for us to ask ourselves whether the British Gas Corporation should make provision for the future to take account of its own exploration costs, because it has its own responsibilities in the North Sea and because it will inevitably, as the hon. Member for Rother Valley (Mr. Hardy) indicated, purchase its gas from much higher cost areas of the Continental Shelf. I think that we should do well to mark that prospect on this occasion.
I conclude by joining the hon. Member for Bristol, North-East (Mr. Palmer) in hoping that we shall now be able to proceed to a situation in which the economic and financial obligations of the nationalised industries are put on a basis that will do much to restore morale, especially management morale, which has been debilitated by events of recent years.
To mark the occasion, and to show that I travel hopefully, I have brought with me the White Paper entitled "The Financial and Economic Obligations of the Nationalised Industries," Cmnd. 1337, which was published in April 1961, under the then Macmillan Conservative Government. To show my even-handedness I also have Cmnd. 3437, entitled "Nationalised Industries, A Review of the Economic and Financial Objectives," which was published in November 1967 by the Government under the premiership of the

right hon. Member for Huyton (Sir H. Wilson).
May I suggest that, as we live by fashion in politics, if we moved back to the fashion that was outlined in those two White Papers it would be to the advantage not only of the gas industry but of the economy and the community.

11.3 p.m.

Mr. Peter Bottomley: I apologise to the Minister and my hon. Friend for not being here at the beginning of the debate. I do not intend to hold up the House for more than a minute or two.
I should like to confirm what the Under-Secretary said about the natural gas conversion, which went through my constituency not quite like wildfire but very smoothly. Only three problems were raised with me, all of which the South-Eastern Gas Board cleared up quickly. A tribute to the people of the gas board and its contractors is due from this House. I should very much like to associate myself with what the Minister said.
I should also like to add my weight to those who argued against a gas tax. Some of the reported comments from the Church House conference showed that the economic pressure groups often get carried away with the idea of protecting themselves. Even though we may be concerned with 200,000 people in the coal industry and perhaps an equivalent number in the electricity supply industry, when we think of gas and domestic energy we are considering every person in the country.
The reply that the Department of Energy gave me a month ago clearly showed the decline in the consumption of energy in the domestic market, following the massive increases in prices of coal and electricity during the past five years, and especially so in the past two years. Many people, mainly on lower incomes, and often in council houses or all-electric homes, suffer a great deal from the vast increases in prices. I certainly would not tolerate the imposition of a gas tax because gas is too competitive when compared with coal and electricity. On the other hand, there is a lot to be said for fuel efficiency and conservation.
If we are willing to approach the question on these lines, perhaps we can


arrive at a more realistic attitude, but I do not think that we can go on for much longer tolerating the uneconomic production of fuel and then say that because other parts of the fuel industry cannot compete the profitable and efficient parts must have their legs hobbled, so that we end up with what can be rudely and unkindly categorised as the equality theory. Under that theory, as some are more efficient than others, the efficient have to have more hurdles placed in front of them, so that everyone can fall down together half-way along the course. That is not a very efficient way of running industry.
Finally, I address myself to the question, brought into the debate in a very mild way, of the power for automatic disconnection by the energy boards. I do not ask the Minister to reply again this evening, but it is very important that the House should have an opportunity to debate the various reports that have been published during the last two months, because a lot of hot air is being talked. We often see this in politics when nationalised industries come up against well-meaning Members of Parliament.
I believe that most ratepayers pay their rates when they receive a notice from their local council threatening court action. I think the same would apply if the energy boards did exactly the same thing. There is no evidence that someone such as myself, occasionally paying the gas or electricity bill when there is a threat of disconnection, will not do exactly the same if threatened with court action. There is no—

Mr. Deputy Speaker: Order. The hon. Gentleman must address himself solely to the gas industry, relating his remarks to the Order.

Mr. Bottomley: I take your guidance, Mr. Deputy Speaker. I hope that the Minister will not have to bring forward another price restraint compensation Order next year because of the implementation of proposals to get rid of the automatic power of disconnection. I hope that the Minister will have a word or two with his right hon. Friend the Leader of the House and arrange for a debate on that important topic, so that we can bring it completely within order, because it is

a subject that needs full discussion. The Early-Day Motions indicate this.

Question put and agreed to.

Resolved,
That the Compensation for Limitation of Prices (British Gas Corporation) Order 1976, a draft of which was laid before this House on 10th June, be approved.

LIST D SCHOOLS (SCOTLAND)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. James Hamilton.]

11.7 p.m.

Mr. Teddy Taylor: I was very sorely tempted to speak in the debate on the Compensation for Limitation of Prices (British Gas Corporation) Order 1976 when I heard my hon. Friend the Member for Oswestry (Mr. Biffen) and other hon. Members talking of the possibility of a gas tax. They will be aware that we have had a gas tax in Scotland for many years. We have always paid more for our gas in Scotland than people in the rest of Britain have paid. The Under-Secretary of State for Scotland will agree that the efforts of both Conservative and Labour Scottish Members of Parliament to get Governments to do anything about this have been singularly unsuccessful.
I apologise to the Under-Secretary for bringing him here yet again for an Adjournment debate. Although I have not been involved in one myself for many years, the Under-Secretary, since his appointment, seems to have had far more than his share of them. However, he will probably not object to my doing this on the important question of List D schools. As the House is aware, List D schools were established as one of the pillars of the children's panel system. It was one of the pillars on which this system was to function. In practice, the only action that a panel can take to deal with a young offender, apart from giving advice to the parents and the youngsters, is to put the young offender in a List D school or under the supervision of a social worker while at home.
Unfortunately, because the List D schools are overfull, with lengthy waiting lists, and because the social departments in some areas already provide little more


than an emergency service, the children's panel system of dealing with young offenders is in danger of collapsing. Everywhere, figures can be produced to show that schools are not full at any time and that in some cases only 60 per cent. of the beds are full. That arises because of the changeover. One youngster leaves and the bed remains empty until another youngster arrives. I am sure the Minister would not question that, although there is not 100 per cent. occupancy, there is a severe shortage of beds in these schools. There are long waiting lists, and panels have been told that children cannot be taken.
The panel members are becoming frustrated, and some are close to resigning. Mrs. Maurine Murchison, who chairs the Inverness-shire panels, said recently:
It is fair to say that unless adequate provision for young offenders is made by the Highland Region, there are panel members who will have to consider whether the time spent on children's hearings is worth while.
The police are fed up to the teeth with the whole system. In May, for example, Chief Constable Alex Morrison, of the Grampian Force, said:
Police morale is low because they know that, no matter how earnestly they pursue inquiries, little is going to happen to the offenders. List D schools are chock-a-block.
I am sure that the hon. Member for West Stirlingshire (Mr. Canavan) will agree that the public are disturbed—rightly so—about the rising tide of juvenile crime and vandalism. Vandalism has become Scotland's greatest social disease. There is clearly no effective deterrent to curb vandalism and juvenile crime when all that can happen if the offenders are caught is that they appear before a children's panel that is hamstrung by the limitation of resources.
I know that many youngsters are concerned and alarmed that the State is apparently powerless to maintain standards of conduct amongst the young. Wild tearaways, wreckers and vandals, who, happily, are still in the minority, are undermining school discipline and community standards and causing an immense loss to public funds by their activities.
Even liberally-minded people like the hon. Member for Glasgow, Kelvingrove (Mr. Carmichael), who supported the panel system, are disturbed at the effect of the present List D school crisis. Some

youngsters who have to be detained because of their conduct are put in prison simply because there are no secure places available in List D schools. I shall mention only one example. In Paisley, two youngsters aged 14 and 15 were sentenced in March to two years' and one year's detention, respectively, for housebreaking. They were taken to Barlinnie Prison, because they had been waiting since the previous summer for a place in a List D school. The sheriff declared that it was ridiculous that the youngsters, who were supposed to be getting training at a List D school, had been free to commit other offences.
Perhaps I should mention yet another case. Everyone in Scotland was shocked to read the report of the Inverness case last week. A youngster who had appeared before a panel on 21st January on charges of indecent assault had been assessed before a panel as suitable to be placed in a secure home. No place could be found for him, although the social worker concerned telephoned every such establishment in Scotland. The boy was therefore allowed to go home. He proceeded to assault a little girl of 4 and to attempt to rape her. Since the incident the boy has been in Porterfield Prison. The distress caused to the little girl, and the fact that no training had been given to her attacker, should make Parliament and the Government wonder whether the guilt does not fall on them for failing to provide a system that deals adequately with young offenders.
What are the full facts? I should like the Minister to tell the House about the number of youngsters who have been sent to prison because no secure places are available. I should like the Minister to tell us about the capacity of List D schools and about the waiting lists. I should like the Minister to tell us what plans he has to deal with what is clearly a crisis situation, and to comment on some suggestions that I have for dealing with the present emergency.
I think that the Minister will agree that, even if cash were available now to build more List D schools, it would probably be at least two years before the buildings would be ready for occupation. Would the Minister be willing to set up a committee of panel members, police forces and Members of Parliament to review the urgent need that exists and put forward,


within a period of eight weeks, specific proposals on alternative accommodation?
I would think that we could use the many hutted camp sites in Scotland to provide training facilities similar to those of List D schools, and to man them I believe that we could use the surplus of teachers who will, unfortunately, shortly be joining the dole queues. Some cash would be required to make the sites more secure, but I am convinced that our open-air camp site schools would give scope for outdoor activities and that the spending required could probably fall within the job creation scheme. The camps would not be holiday centres; they would be tough and disciplined camps, which could provide the kind of training that might influence the youngsters to change their ways.
Secondly, I recommend and hope that the Minister gets some statistical calculations done as a matter of urgency to establish the effectiveness or lack of effectiveness of List D school training. In particular, we should learn what percentage of the youngsters return to crime or vandalism and the percentage who get into no more trouble.
The Minister has complained in the past that Scotland has a larger percentage of youngsters in List D schools than have other nations, and particularly more than England. Could it not be that the reason for this is simply that the List D schools are not effective either as a deterrent or as a form of rehabilitation?
Thirdly, I ask the Minister to have urgent talks with the police to get their views on how deterrents might be made more effective. If they are not, we are simply condemning hundreds of thousands of our Scottish citizens, particularly in housing schemes, to a continued life of hell as they suffer from the activities of vandals and young hooligans.
I have always believed in the reintroduction of the birch as a penalty for acts of violence and vandalism by young offenders. I am sure that this would relieve the pressures on List D schools very speedily, and would also give encouragement and protection to the law-abiding public.

Mr. Dennis Canavan: Does the hon. Gentleman realise that corporal punishment is at present

used in schools, including List D schools? How on earth would the reintroduction of the birch help to minimise this problem or solve it? I suggest that we already have an excessive use of corporal punishment in certain schools, and it obviously does not act as a deterrent to vandalism.

Mr. Taylor: I know that the hon. Gentleman takes a great interest in this matter. He has said that as a teacher he used corporal punishment, although he has spent most of his parliamentary career trying to get it abolished. His ideas have been popular and have been in charge, to some degree, of the policy of the Government. But that soft policy has produced the situation in which we have a crisis in the List D schools because we cannot find places for youngsters found guilty of serious crimes, and in which the penal system is in danger of breaking down. We have tried the hon. Gentleman's ways for years, and the situation has reached crisis proportions.
I am sure that the hon. Gentleman will agree with me that vandalism and violence among young offenders generally have been increasing at a disturbing rate. I am convinced that if we had an effective deterrent of this sort it would make a major change. The Minister has his views, which he holds strongly. I have mine. In view of the collapse of the policy that has been followed, would he be willing to try my suggestion for an experimental period of three or four years and see whether it would make a difference?

Mr. Canavan: It would do harm.

Mr. Deputy Speaker (Mr. Bryant Codman Irvine): Order. Sedentary interruptions are not in order.

Mr. Taylor: The present policies and their effects are doing immense damage to law-abiding people in many of our communities who want to live healthy lives but whose lives are being made a hell by the activities of young hooligans and vandals.
I ask those who disagree with me—and I believe that the Minister is one of them—for their solutions to what they must admit is the very urgent and serious problem that exists on our doorstep in Scotland. If we cannot propose an


effective solution the electors and the citizens of Scotland will continue to lose faith in our democratic institutions. Some may be tempted to take the law into their own hands.
A Written Answer was given today to my hon. Friend the Member for Edinburgh, Pentlands (Mr. Rifkind), relating to the powers of the Government under the Childrens Act 1975 to make grants to councils that want to build secure accommodation for children. I understand that my hon. Friend asked how many applications the Government had received under that Act and that the reply was that there had been three applications but none had been granted so far. If that is the case, it shows that the Government are not treating the matter with the urgency that it merits.
I hope that the Minister will acccept that there is an emergency situation and that emergency measures are required. I have every confidence in the Minister. I am sure that he will feel a sense of urgency, and will not give us flannel.

11.22 p.m.

The Under-Secretary of State for Scotland (Mr. Frank McElhone): I thank the hon. Member for Glasgow, Cathcart (Mr. Taylor) for initiating this debate. The matter is causing a great deal of concern to the public in Scotland. I do not deny that. I readily recognise that this concern has not been stimulated solely by the particular case of the Inverness incident to which the hon. Gentleman referred. It is of a more general kind. We have a serious problem on our hands. I fully understand that and appreciate the concern and, indeed, the anger of individual people whose property or whose children are attacked. I share the hon. Gentleman's view that we should reject the vandalism that occurs in many places. In communities that have tried to look after themselves vandalism does not occur to any great extent. In my own area of Hutchesontown little damage is done, thanks to the efforts of the tenants' association.
The Government and the local authorities are giving expression to their concern. Things have been done and are being done to tackle the problems with which this debate is concerned. Expenditure on List D schools has risen from

just over £2 million in 1969–70 to an expected figure of approximately £7·3 million in 1976–77, and the building programme is running at about £750,000 annually. Since 1968–69 the number of staff has risen from 614 to 999. A total of 69 additional places have recently been added to the system, including 28 secure places. In the List D schools there are at present 53 secure places for boys and a special unit of 10 places for particularly difficult girls.
There are 12 assessment centres in Scotland, providing 350 places. Current local authority building programmes should provide a further 137 assessment centre places, 61 of which are expected to become available this year and the remainder in 1977. Planning is proceeding to provide another 45 places. If certain difficulties can be resolved in relation to the project in the Highland Region, to which the hon. Gentleman referred, we should see all regional authorities having assessment centres for their youngsters.
In the Highland Region there is no assessment centre and no List D school. One might ask whether former local authorities took that into account when they thought about the social problems that might occur there. The Department has allocated £100,000 to the provision of a centre in the region and it is urgently considering what can be done within the constraints on local authorities in the Government's present financial programme.
My Department has taken the lead in trying to work out with List D schools and local authorities a quota system for the allocation of places in the schools, whereby each local authority will have a certain number of places and will arrange the admission of children from its own area.
I do not doubt what the hon. Gentleman said about the social worker telephoning every List D school. I was not aware of that. We have made many checks on this case, but I shall check that point also for the hon. Gentleman.

Mr. Andrew Welsh: Can the Minister give an indication of the size of the waiting list for List D schools? What sort of demand for places is there?

Mr. McElhone: I think that the hon. Gentleman will find that I shall cover those points.
We have now had comments from the schools and the local authorities on our quota proposals, and we are considering the best procedure.
There was a mention in the Press recently of the problems of Strathclyde Regional Council with the Larchgrove Assessment Centre. My officials are aware of the problem and have made considerable efforts to assist Strathclyde to secure the placement of boys sentenced to detention by the courts for serious offences. Only two of the boys in that category about whom the council approached the Department in March have not yet been placed, and they require special assessment. We give as much help as possible to local authorities.
So far, I have spoken only about our efforts in relation to residential accommodation. We believe that this is not the only possible approach to the problem of children in trouble. We have been active in promoting, through policy guidance and otherwise, the provision of schemes of intermediate treatment, and there are now many such schemes, ranging from extra activities arranged by social workers for children on supervision to more formal schemes. Many of the more formal schemes provided by local authorities have been supported by urban aid funds. Schemes have also been organised by voluntary bodies that receive specific grant for the purpose from the Department.
There may yet be more scope for a movement away from residential care. That is a view that I hold. Pro rata, we send more youngsters into care in Scotland than in England and Wales or any other EEC country. Are the youngsters in Manchester, Birmingham or Brussels any better or worse than in Glasgow? I am convinced that we must seek other ways.
I have been having meetings with various people from local authorities—in particular the Lothian and Strathclyde Regions, I have met the directors, conveners, reporters and panel chairmen from Strathclyde and Lothian. They are actively engaged with me in considering alternative ways of assisting young people—in other words, putting some responsibility on to the community for the social ills of the community.
Although there is a need for List D places, I suspect that a number of young people in them should not be there. I am trying to tell the community "You must accept some responsibility, and do it voluntarily". We are heading in that direction.
The hon. Gentleman asked whether we had consulted the police about deterrents. We put out a circular some time ago asking various authorities, including the police, for their views on the powers of children's hearings, and on the future powers that they might like to see, and any changes that they might want in the allocation of those powers. Included in the circular there was a point about finding caution and also the possibility of fines being imposed by children's panels. They are only points for discussion, and the views of the police and of all the other bodies will be seriously considered.
The hon. Gentleman asked for the number of places in List D schools. There are 1,646 places. He also referred to the occupancy rate. That is a difficult question. Certain schools have age ranges. Some take only girls. Others take only Roman Catholic children, or Protestant children. We had the disadvantage of a fire at Thornly Park, Paisley, and we had difficulties at Wellington School, Penicuik, which have now been resolved by the appointment of a headmaster, and we hope to get that school working at full capacity again.
The hon. Gentleman pointed out that there is a great deal of disillusionment amongst members of children's panels. I have taken the opportunity to look into that. Although we have 1,751 members of children's panels, and although 171 members resigned in 1975, in their letters of resignation only 10 said that they were resigning because they were disillusioned or frustrated. Most of the other resignations were because people had to move away, or because of the pressure of their work. I have tried to check the figures for this year. I understand that only five have sent letters saying that they were disillusioned with the children's panel system.
I am sure that the hon. Gentleman will join me in paying tribute to the many people who give dedicated service in their free time to running the system. Although the system has been going for five years,


it is still under trial and needs time to prove itself.
As for the boy whom the hon. Gentleman mentioned, I must say that I offer my sympathy to the family whose child was attacked. But there is no doubt that the boy was receiving regular supervision, both formal and informal, from his social worker, who lived on the same housing estate, and co-operation from the mother was good.
I am aware that we can always improve our allocation of youngsters to List D schools, and I am instructing my officials to undertake as soon as possible discussions with directors of social work and reporters to children's panels on how to achieve improvements in the means of identifying children who have committed serious offences and who present special difficulties so that we can arrange placement as quickly as possible. We shall also discuss ways of speeding up the filling of the empty bed spaces in the List D schools. We have 26 List D schools.
The hon. Gentleman referred to a Question asked by the hon. Member for Edinburgh, Pentlands (Mr. Rifkind) about grants for secure accommodation. Perhaps I may give him some information about them. In May 1976, the DHSS issued a circular about the grant scheme that will operate south of the border, a circular giving details of a comparable scheme in Scotland is in preparation. It should be issued shortly. My Department is also having discussions with two or three regions which are interested in planning the provision of secure accommodation.

Mr. Teddy Taylor: Is it not preposterous that an Act should have been passed in 1975 providing for grants to be paid in respect of secure accommodation and that the Government are only now thinking of sending out a circular letter on the subject?

Mr. McElhone: At the end of the day we had to have some regard to the fact that the new authorities were only getting under way in 1975, and that they have gone through a transition period from the old local authorities. In the case of the regional authorities there was a mas-

sive changeover, when they brought so many smaller district authorities into one unit. We had to have some regard to that. But I think that they are now starting to speed up the process of working with central Government.
I want to say a quick word about waiting lists. There was a waiting list of 536 in June 1975, and the figure on 20th June this year was 366. I do not deny that there is a problem—the hon. Member for Cathcart highlighted it—but within the constraints that local authorities and my own Department have to work we are doing as much as we can to provide places for youngsters who need care and treatment in the List D schools, at the same time looking to oher possibilities.
I am very glad that in the two major authorities that I consulted on this matter—Lothian and Strathclyde—the officials, the reporters, the chairmen of the children's panels, the social work committee and the conveners are at one with me on the need to attempt something different, in bringing some responsibility to bear on the community.
I totally reject the hon. Member's suggestion about the birch. I have always opposed its use—as a magistrate, a police judge and a member of a local authority. History proves that that type of punishment given to young people does not reduce the number of offences at the juvenile or the senior level. I have learned this not only through discussing the subject but from people who have had the birch and people who have had to administer it. We must look to other methods. The trouble stems from the environment from which many of these youngsters come. Perhaps we all share responsibility for them. Finally, we shall get back to a balanced, sane society, in which our young people respond as all young people should—

The Question having being proposed after Ten o'clock and the debate having continued for half an hour Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty-three minutes to Twelve o'clock.